Unit 9- Insurance Company Prodicts Flashcards
Do variable annuities require a prospectus?
Yes….because the separate account is registered as an investment company.
NOTE: the annuity company is not a registered investment company, but the separate account is.
Do variable annuities have a maximum sales charge?
No…according to FINRA, it simply has to be reasonable.
What is a “Unit Refund Option”?
The option to take a minimum number of payments in retirement from an annuity, which allows any remaining value to be passed to a beneficiary after the annuitants death.
Define: AIR
AIR = assumed interest rate.
It is a target rate of return for the separate account of a variable annuity. It is established after annuitization.
If the rate of return in the separate account exceeds the AIR, the next months payment will go up. The opposite is true if the ROR drops below the AIR.
The AIR is adjusted annually, based on the insurance company’s actuarial tables.
Tax treatment of withdrawals from a variable annuity?
- Lump sum or irregular withdrawals are taxed LIFO (aka: growth is removed first, then principal.
- Regular annuity payments are taxed as ordinary income for anything above the cost basis (aka: payments are taxed prorata)
Note: like a retirement account, withdrawal are assessed a 10% tax penalty for early retirement withdrawal.
What is a 1035 exchange?
Tax free exchanges can be made between annuities and life insurance.
- annuity to annuity = ok
- life to life = ok
- life to annuity = ok
- annuity to life = NOT OK
note: negative consequences can include
- possible surrender charges
- new surrender charger period
- possibly loss of higher death benefit
Define: Qualified annuity?
An annuity funded with pre-tax dollars. (Tax is similar to a 401k)
Special suitability with variable life products?
Variable life insurance can not be sold on the basis of being a secularity alone.
There must be a need for life insurance, and the investor must be comfortable with a lack of guarantee in the separate account, as well as the volatility of the separate account.
What is the 36-month rule?
It’s unsuitable to do an exchange of a variable annuity within 36 months of the last exchange.
Member firms must make a reasonable effort to determine if a client has done this at another firm.
What is a “policy loan” and what are the testable features?
Policy loan = a loan against a separate account of a variable life insurance product.
Key features:
- A minimum of 75% of the cash value must be available to barrow against, after 3 years.
- The insurance company is never required to lend 100% of the cash value.
- If the insured dies with an outstanding loan, the death benefit is reduced accordingly.
- If the insured surrenders the contract with a loan outstanding, the cash value is reduced accordingly.
What is a variable life insurance contract exchange?
Within the first two years of owning a variable life insurance contract, the insured can exchange into a more terminate product.
Key features:
- Contract exchange privilege must be available for two years minimum
- No medical underwriting/exam needed for the exchange.
- The new policy is issued as if everything was reversed. (Original age of the insured is used, etc)
Max sales charge of a variable life insurance product?
9% of the premiums to be paid across the life of the contract.
Refund provisions for variable life insurance?
- 45 day refund policy from the execution of the application, or 10 days after the owner receives the policy, whichever is longer. All money back (including premiums.)
- After the policy has been in effect for 2 years, the surrender value is the cash value; sales charges are not refunded.
FINRA rule 2330 deals with a members responsibility in the sale of which insurance product?
Deferred variable annuity
FINRA rule 2330 deals with a members responsibility in the sale of which insurance product?
Deferred variable annuity
