unit 9 Flashcards
1
Q
annuity
A
- contract between an individual and a life insurance company, usually purchased for retirement income
- earnings are tax deferred - can be valuable for investors looking to accumulate additional funds for retirement
- no limit on contribution amt
- either fixed or variable
2
Q
annuitant
A
- investor
- pays the premium in one lump sum or periodic payments
- at a future date the annuitant can surrender the policy and receive lump payment or get regular income distributions that will continue for life
3
Q
fixed annuities
A
- not securities
- guarantees a fixed rate of return
- when annuitant elects to receive income, the payout is based on the accts value, the annuitant’s life expectancy
- inflation risk
- premium goes to the insurance companies general acct
4
Q
variable annuities
A
- money is directed onto one or more sub accounts of the company’s separate acct.
- these separate accts act like mutual funds and have a wide variety of objectives
- returns are not guaranteed and loss of principal is possible
- separate accts are registered as investment companies (often as UIT)
- required by the Securities Act of 1933 to deliver a prospectus prior to or concurrent with the sale
- most often invested in a stock portfolio - has a better chance of keeping pace with inflation than fixed income investments
- more risk than a fixed annuity
- payments vary due to the sub accounts performance
- guaranteed death benefit: if the investor dies during the accumulation period, the beneficiary will get the greater if the current value of the acct or amt invested
5
Q
variable
A
- if you see the word variable, 2 licenses are needed to sell: an insurance license and a securities license
6
Q
life insurance
A
- provides death benefit to a named beneficiary or beneficiaries upon the death of the insured
- premium for the policy is calculated according to the insured’s health, age, sex and policy’s face amt at issue
7
Q
whole life insurance
A
- designed to last unit at least age 100 or the death of the insured, whichever occurs first
- accrue cash value that may be borrowed for living needs
- insurance license is needed to sell
- not a security and not sold as an investment
8
Q
term life insurance
A
- protection for a specified period.
- provides pure protection and is the least expensive form of life insurance
- does not build cash values
- if the policy is surrender before death or is not renewed there is nothing beyond the expired policy
9
Q
Variable life insurance
A
- has a fixed scheduled premium but it is split between the insurance company’s general acct (used to guarantee a min death benefit) and the rest is in a separate acct (cash value of the policy which fluctuates in value)
- value of the separate acct portion is priced daily but policyholder’s cash value is reported month
- the separate acct portion is subject to investment risk and is a security
- net premium (Amt after premium determined and expenses deducted) is invested in subaccounts of the separate acct. Objectives may include: growth, income, balanced, index, money market
10
Q
assumed interest rate (AIR) and variable death benefits
A
- AIR is the min rat of return necessary to provide the level death benefit.
- AIR is determined by actuaries and stated in the policy contract.
- AIR is a TARGET
- death benefit payable under a variable life insurance policy is adjusted on an annual basis and can increase/decrease based on performance of the sub accounts with AIR.
- benefit of variable life insurance policy is that it can adjust upward and maybe keep pace with inflation
- acct will never fall below the amt guaranteed at issue
- if the separate acct performance is greater than AIR the death benefit will increase
- if the separate acct performance is equal to AIR, the death benefit remains the same
- if the separate acct performance is below AIR, the death benefit decreases but not below the policy’s face amt
11
Q
purchasing annuities
A
- aggregate fees include sales charges on the front end and conditional deferred sales loads which are levied upon surrender
- if you surrender the policy in early yrs, fees can be significant
- payments to the insurance company can be made in a lump sum or periodically
12
Q
FINRA rule 2320
A
- no max sales charge of variable annuities, but the sales charge must be reasonable
13
Q
single premium deferred annuity
A
- bought with a lump sum, but payment of benefits is delayed until a later date selected by the annuitant
14
Q
periodic payment deferred annuity
A
- allows investments over time
- benefit payments are deferred until a future date selected by the annuitant
15
Q
immediate annuity
A
- purchased with a lump sum
- payout of benefits usually starts within 60 days
16
Q
bonus annuities
A
- offers an upfront or first year interest rate bonus
- have surrender chargers lasting longer than those without the bonus
- must disclose the additional costs and benefits
17
Q
settlement options
A
- annuitants wishing to get scheduled payments for life may annuitize and a payout option must be selected
- annuity payment options are: life annuity, life annuity with a certain period, joint life with last survivor annuity, unit refund option
- this is a contractual obligation that is entered into and once annuitized, the decision is final