Unit Investment Trusts (UIT's)

Question 1

What are Fixed Unit Investment Trusts used for?

Answer 1

• packaging muni. bonds

- accumulation accounts

Question 2

What is the key component of a a Fixed UIT?

Answer 2

Thee is NO management

Question 3

What is a participating UIT the same as?

Answer 3

A variable annuity

Question 4

What are the characteristics of a Variable annuity?

Answer 4

• No guaranteed rate of return

- Must be registered as a Security with the SEC

Question 5

What is the AIR?

Answer 5

Assumed interest rate.\

Question 6

What is the separate account component of a Variable annuity (participating UIT)?

Answer 6

Insurance company keeps investments in Variable annuities separate from insurance company’s other holdings

Question 7

What is the mandatory reinvestment component of a variable annuity?

Answer 7

Any dividend payments, interest payments, etc are AUTOMATICALLY reinvested and grow tax deferred

Question 8

What is a life annuity?

Answer 8

This pays the person until they die

Question 9

What is a life annuity - period certain?

Answer 9

If person dies earlier than a certain period, annuity continues for specific time

Question 10

What is a joint and last survivor annuity?

Answer 10

If annuitant dies, it continues for the life of another person

Question 11

What is a Unit Refund life annuity?

Answer 11

If annuitant dies before received full investment, estate gets “refund” of remaining value

Question 12

For those who are risk averse, which type of annuity payout option is best for them?

Answer 12

Buy a fixed annuity that is either Installments for a designated period or designated amount

Question 13

What is a combine fixed and variable annuity?

Answer 13

Annuitant gets a guaranteed return as well as a variable return

Question 14

What is the max. sales charge for a variable annuity? (FINRA)

Answer 14

“Fair and reasonable”

Question 15

What is a GMIB?

Answer 15

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

Question 16

What 2 guarantees come with every annuity, and what do they mean?

Answer 16

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

Question 17

What method is used to take distributions out of a Variable annuity plan?

Answer 17

LIFO - the IRS wants taxable earnings to come out and get taxed before non-taxable return of capital

Question 18

What are like for like exchanges?

Answer 18

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)