Unit Investment Trusts (UIT's) Flashcards
What are Fixed Unit Investment Trusts used for?
- packaging muni. bonds
- accumulation accounts
What is the key component of a a Fixed UIT?
Thee is NO management
What is a participating UIT the same as?
A variable annuity
What are the characteristics of a Variable annuity?
- No guaranteed rate of return
- Must be registered as a Security with the SEC
What is the AIR?
Assumed interest rate.\
What is the separate account component of a Variable annuity (participating UIT)?
Insurance company keeps investments in Variable annuities separate from insurance company’s other holdings
What is the mandatory reinvestment component of a variable annuity?
Any dividend payments, interest payments, etc are AUTOMATICALLY reinvested and grow tax deferred
What is a life annuity?
This pays the person until they die
What is a life annuity - period certain?
If person dies earlier than a certain period, annuity continues for specific time
What is a joint and last survivor annuity?
If annuitant dies, it continues for the life of another person
What is a Unit Refund life annuity?
If annuitant dies before received full investment, estate gets “refund” of remaining value
For those who are risk averse, which type of annuity payout option is best for them?
Buy a fixed annuity that is either Installments for a designated period or designated amount
What is a combine fixed and variable annuity?
Annuitant gets a guaranteed return as well as a variable return
What is the max. sales charge for a variable annuity? (FINRA)
“Fair and reasonable”
What is a GMIB?
Guaranteed minimum income benefit: An optional rider offered by many var. annuities that guarantees when the account annuitizes, the account gets the min rate set in the GMIB rider
What 2 guarantees come with every annuity, and what do they mean?
Mortality guarantee - company pays for ones’ life, even if they live longer than expected
Expense guarantee - if expenses exceed a certain %, the company will absorb the excess
What method is used to take distributions out of a Variable annuity plan?
LIFO - the IRS wants taxable earnings to come out and get taxed before non-taxable return of capital
What are like for like exchanges?
These are exchanges that, by section 1035 of tax code, are non-taxable exchanges. I.e - a fixed annuity can be switched for another fixed annuity. Additionally, a life insurance policy can be switched for a variable annuity tax free (L to V, not V to L)
