variable annuity Flashcards
1
Q
purpose of variable products
A
introduced to provide insurance clients with the opportunity to experience “investment market returns” in their annuities and life insurance.
2
Q
two types of variable models
A
fixed premium variable life (variable life) and flexible premium variable life (variable universal life)
3
Q
entire contract provision
A
“what you see is what you get”
4
Q
incontestability/suicide provision
A
if before 2 years, pays death benefit
5
Q
assignment provision
A
ownership may be collaterally (partial) or absolutely (completely) assigned.
6
Q
misstatement of age or gender provision
A
benefits will be adjusted to reflect what the premium paid would have bought at the actual age.
7
Q
grace period provison
A
- whole life/variable life 31 days
- flexible premiums 61 days
8
Q
automatic premium loan provision
A
may be requested by the owner to provide for paying premiums out of cash values.
-benefit limited to fixed premium policies (whole and variable) and 2 premium payments.
9
Q
2 parts of the variable life death benefit
A
- guaranteed minimum death benefit
- death benefit based on separate account
10
Q
variable life cash values
A
vary with performance of the underlying separate account and not guaranteed.
11
Q
reinstatement policy provision
A
- whole life- 3 years
- variable life- 2 years
- annuity- 1 year
12
Q
conversion provision
A
says that a variable policy can be converted to a whole life policy.
-have to have had the initial account open for at least 18 months
13
Q
policy loan provision
A
loans permitted after 3 years.
- can get loans for up to 75% of cash value
- max loan rate is 8%
14
Q
premiums on variable whole life
A
premiums are fixed, level, and required
15
Q
premiums on variable universal life
A
premiums are flexible. owner will be advised on a target premium to keep the policy paid to maturity
16
Q
2 free look provisions
A
- 10 days from delivery date
- 45 days from date of application
17
Q
general account
A
operating account of a life insurance company. usually invested in high grade bonds and commercial real estate.
18
Q
separate account
A
segregated from general account. composed of a variety of investment sub account with full range of options.
19
Q
unitrusts
A
“indirect method”
-involves insurer contracting investments to an investment company. characterized by higher fees and investment company focused marketing
20
Q
open-end investment companies
A
“direct method”
-involves the insurer creating their own investment company
21
Q
rules for changing investment policy in the separate account
A
policy owners always have right to vote on major changes, but Georgia Code grants the Commissioner the authority to approve any changes.
22
Q
how do you calculate net investment return
A
interest, dividends, and capital gains received minus expenses.
23
Q
gross premium charges
A
charges taken directly from premiums, such as taxes, and loads
24
Q
separate account charges
A
charges typically taken from the separate account, such as investment management, risk fees, and cost of insurance.
25
taxation of variable life
any gain beyond basis at surrender is taxable as ordinary income
26
securities act of 1933
-full fair and disclosure
| says prospectus is required prior to or during solicitation
27
securities act of 1934
- people act
| - establishes the SEC to supervise issuers, their securities, and the markets in which they trade.
28
investment company act of 1940
establishes open, closed, and UITs management companies
29
purpose of annuity policies
protect the annuitant against living too long. primary role is to create retirement income.
30
2 period of annuity policies
1. accumulation period (building)
| 2. annuity period (payout)
31
2 types of annuities
- fixed
| - variable
32
describe fixed annuities
- guaranteed minimum interest rate
- units worth $100
- guaranteed level retirement income payment
33
describe variable annuities
- produce accumulation based on investment performance and not guaranteed.
- income stream will fluctuate with stock market so expectation is that it will keep up with inflation
34
describe the 3 different types of premium payments in annuity policies
- single premium. funded with a single payment. payout begins immediately.
- flexible premium. initial payment opens account, then funded at any time
- period payment. payments made systematically from payroll or bank account. can be modified at any time.
35
describe an accumulation death benefit annuity guarantee
-most pay the higher of the account value or the sum of the premiums paid if the annuitant dies during accumulation.
36
describe taxation on annuities
-contributions are non-qualified (after tax dollars). because contributions are already taxed, the owner can take out all of basis dollars without taxes. at withdrawal, the gains will be taxed.
37
section 1035 exchange
says policies can be exchanged for other life policies or annuities without tax consequences.
- annuity to annuity- OK
- life to life- OK
- life to annuity- OK
- annuity to life- NOT OK
38
NASD
created in 1938 by the Maloney Act, as a self regulator entity to license and regulate broker dealers and their reps.
39
single most important task in determining suitability is?
basic product availability (need for insurance)
40
describe a suitable time horizon for annuity products
typically seen as long term. because they have have front end load charges, it takes time to make that up. should be invested with horizon of at least 10 years.
41
describe the operation rules for managing the separate account
10% of assets, 10% of stock rules- no more than 10% of assets may be in any single issue, and a separate account may not own more than 10% of the voting stock of any issuer.
42
Bond requirement on annuity
any person with access to the assets of a separate account must be bonded. the minimum is 10,000
43
3 rights of owners
1. one vote per unit (VA) or per $100 of CV (VLI)
2. recieve periodic reports- at least annually
3. Separate account valuation- assets valued daily
44
code definition of variable life
means any individual or group policy issued by an insurance company providing for life insurance and benefits incidental thereto, underwhich values may vary as a result of underlying investments.
45
describe the commissioner's powers
commissioner has sole and exclusive authority to regulate the solicitation, sale and insurance or variable life policies and to issue rules and regs.
46
reserve liability
insurance companies must maintain reserves to meet obligations of separate account.
47
affiliate of an insurer
any person directly or indirectly controlling or under common control with an insurer: people giving financial advice to insurers, directors, officers, partners, or employees of any insurer, immediate family.
48
assumed investment rate (AIR)
forms the basis for projecting payments, but is not guaranteed.
49
general account
account that holds all of an insurers assets other than those in separate accounts.
50
separate account
account that holds funds paid by variable annuity or variable life insurance contract holders.
51
variable death benefit
amount paid to a beneficiary. depends on the investment performance. amount is added to any guaranteed minimum death benefit.
52
grace period for scheduled premium policies
-31 days from premium due date
53
grace period for flexible premium policies
-61 days after mailing date of the statement to policyholder
54
reinstatement rules for scheduled premium policies
can be reinstated at any time within 2 years from the date of default, unless cash surrender value has been paid.
-110%, 6%
55
incontestability
provision that states that any policy in incontestable by the issuer after it has been in force for 2 years.
56
investment policy provision
states that the investment policy in a separate account can not be changed unless approved by the Insurance Commissioner.
57
describe policy loans
says you can take a loan against your policy after it has been in effect for 3 full years.
-75% of policy's cash surrender value can be borrowed.
58
how long must advertising documents be filed?
4 years
59
how long must notices of replacement be kept on file?
3 years
60
when used in the context of a life insurance or annuity contract, "variable" refers to the contract's..
investment performance
61
which law principally regulates open end investment companies including variable separate accounts?
investment company act of 1940
62
the primary difference between traditional life insurance contracts and variable contracts is that..
with traditional contracts the company assumes the risk, while with variable contracts the insured assumes that risk
63
what main things are typically found in an annual report?
- dividends received on portfolio
- capital gains realized on portfolio securities
- unrealized capital gains on portfolio securities
64
how would you best describe the incontestability provision of the georgia code?
the incontestability period cannot run longer than 2 years from original issue date except that additional coverage will have an additional 2 year period.
65
a strategy to blend various types of investments in an effort to reduce market risk is called..
diversification
66
variable contracts may be characterized by their..
- investment risk
| - investment performance
67
the account setup by the insurer to handle the variable contract assets is..
the separate account
68
if your prospect wishes to purchase a life insurance policy that will enable him to have a guaranteed death benefit but, at the same time, take advantage of potentially higher market rates over the next 25 years, you would recommend..
scheduled premium variable life
69
the insurance commissioner has promulgated many rules regarding advertising relating to insurance policies. the ultimate responsibility for insuring that these ads comply with regulations is that of..
the insurance company
70
in order to be able to sell a flexible premium variable life insurance policy an agent must be appointed by..
the insurance company
71
a life insurance policy with benefits tied to the performance of a separate account that allows the policyholder to skip premium payments is called..
a flexible premium variable life insurance policy
72
the first step in determining a client's suitability for a variable contract is determining the client's..
need for insurance protection
73
insurer general accounts are usually required by state law to invest primarily in..
bonds and commercial real estate
74
pure life protection is usually associated with..
term life
75
under the indirect investment method, the separate account is organized as..
a unit investment trust
| direct method is mutual funds, open end companys
76
when selling a new insurance policy that will be replacing one that is currently in force, the agent must..
complete the appropriate replacement
77
what kind of insurance products require an NASD license to sell?
variable life
78
what are three benefits of life insurance?
- cash values accumulate on an income-tax differed basis
- cash value usually may be withdrawn on a FIFO basis
- the death benefit is usually paid income tax free
79
on a fixed premium variable life insurance policy, the insured is guaranteed..
at least 100% of the stated death benefit
80
premiums for a variable life policy usually are..
fixed as to the payment amount and schedule
81
if life insurance has cash value that varies with investment experience and a flexible premium schedule, it must be..
flexible premium variable or variable universal life
82
a type of permanent life insurance with flexible premiums, renewable term death benefit and cash values would be called..
universal life
83
investment risk is a characteristic of..
variable contracts
84
describe the free look provision on variable annuities
10 days from date of delivery and 45 days from date of application
85
the primary purpose of an annuity is to..
provide a long term stream of income
86
describe variable life contract loans
are permitted, but not in amounts equal to 100% of cash value
87
because of its flexible features, variable life insurance can help a policyholder do what three things?
- fund a child's education
- provide additional retirement income
- obtain cash values loans for an emergency
88
what is guaranteed in a variable annuity contract? 4 things
- choice of settlement options
- tax deferral of any earnings
- death benefit
- expenses
89
how are separate accounts and contract holder's account valued?
- separate valued daily
| - contract holder's valued monthly
90
variable annuities are sometimes referred to as dually registered products. this refers to the fact that they are registered..
with the state as an insurance product and the SEC as a securities product
91
variable and flexible premium variable life are distinguished from other policies by..
the use of a separate account to fund policy values
92
variable life insurance permits policy loans of..
at least 75% of cash value
93
one of the distinct properties of variable insurance contracts is the existence of the separate account. the assets held in that separate account legally are the property of..
the insurance company
94
regulations require that the death benefit of a variable life insurance policy be calculated no less frequently than..
annually
95
in the separate account, the insurance company must maintain what?
maintain surplus equal to the obligations of the account
96
describe the reinstatement period for all the types of variable products.
- whole life- 3 years
- universal life- 2 years
- annuity- 1 year
97
if your client purchased a participating variable life insurance policy. what can he do with the dividends?
1. purchase paid up additional insurance
2. the amount of the dividend may be left on deposit with the insurer to accumulate
3. take them in cash
98
the settlement option providing payments for as long as the beneficiary lives is..
straight life income
99
variable life policies must be able to be exchanged for fixed benefit policies within..
18 months
100
the variable loan interest rate of a variable life policy usually..
varies with a published corporate bond index
101
to avoid being classified as a MEC, a policy must satisfy what?
7 pay test
102
before or at the time of a variable product sale, the buyer must be given..
a prospectus
103
one of the valuable features of a variable life insurance policy is the conversion privilege. By state law, this right is in effect for?
the first 18 months after the policy issue date
104
in order for an insurance company to sell variable contracts in this state, it must have the approval of..
the state insurance commissioner
105
mr. and mrs. williams have purchased a joint and two thirds survivor immediate variable annuity. upon the death of the first of them, the survivor will receive..
a monthly payment for life that is equal to two thirds of what the annuity units would have provided prior to the death of the first annuitant
106
in a universal life policy, the premium "suggested" by the insurer is called?
a target premium
107
a variable contract owner paid a 300 premium on a date when the unit price was 6.60. how many units were acquired?
45.45 - 300 % 6.6
108
if a variable policy owner stops paying premiums and gives no notice to the insurer, what is likely to occur?
the cash value in the policy will be used to purchase extended term insurance (1 year)
109
compared to traditional life and annuity contracts, variable products have more..
compliance issues
110
the net investment return represents?
the amount credited to the policyholder
111
how would you describe the type of insurance purchased by those who are hoping to take advantage of higher interest rates?
universal life plan
112
in order for a domestic insurer to transfer cash or securities out of the separate account, permission would be needed from?
the state insurance commissioner
113
if an agent offered a prospect an inducement, other than something stated in the policy, the agent would be considered to be..
in violation of the rebating rules
114
a variable policy's death benefit will increase if the investment return in the separate account is?
greater than the assumed investment return (air)
115
a life policy where the death benefit may be less than the original face is?
a variable universal life policy
116
what may not be deducted from a variable universal premium payment?
issue charges
117
a separate account's investment policy must be stated where?
in the prospectus
118
the cash value of a flexible variable life policy may fluctuate how?
may rise or fall on the investment experience of the separate account
119
the holder of a variable life insurance policy must be provided with?
- a statement of the net investment results of separate account at least annually
- a list of portfolio holdings in separate account
- a statement in bold type that states purpose of policy
120
one of the most distinguishing factors of variable life is?
cash values are dependent upon performance of the separate account
121
an annuity containing both fixed and variable elements is known as?
a combination annuity
122
the voting rights of a variable annuity contract holder is shown in the?
prospectus
123
during the annuity period, the annuitant's payments are taxed as?
income for the amount not attributed to cost
124
an individual who has terminated annuity premiums would normally be allowed to do what three things?
- surrender the contract for its cash value
- use the cash value to buy a paid up deferred annuity
- use the cash to buy a paid up immediate annuity
125
the most important reason to purchase a variable life insurance policy is for the death benefit. the cost of this protection is an obligation of the?
separate account
126
describe the relationship between annuity units and their value during the payout period of a variable annuity.
the number of units remains constant; the unit value varies.
127
the variable life insurance policy that you offer is similar to the new york life plan. this means that the death benefit is adjusted how often?
monthly
128
what would you see on the face page of a variable life policy?
- a statement of minimum guaranteed death benefit
- an insuring clause signed by an officer of the insurer
- a statement as to whether the policy is participating
129
accumulation unit values in all separate accounts must be calculated when?
each business day except legal holidays
130
variable annuities where developed primarily to do what
counter the corrosive effects of inflation on retirement income.
131
unlike mutual funds or other financial products, variable annuities include?
mortality and expense charges
132
monthly payments into a deferred variable annuity purchase what?
accumulation units
133
there are a lot of things that can avoid penalties during early distribution. what does not?
financial hardships
134
the most common restriction to fund transfers in variable annuities prevents..
transfers involving the general account
135
in a variable annuity, the payments received by the annuitant are based on?
the value of an annuity unit
136
when withdrawing funds from a deferred annuity, the policyholder faces what?
possible contract surrender charges
137
section 1035 of the internal revenue code allows?
the exchange of one deferred annuity for another without current taxes
138
the amount of salary being withheld to buy an annuity under a 403b plan is called?
the withholding allowance
139
if a qualified plan annuitant had no cost basis, payments at retirement would?
be taxed entirely as ordinary income
140
separate account assets are valued at their?
market value on the date of valuation
141
who is not technically an affiliate of an insurer?
a policyowner
142
your client's variable life policy states that the interest rate on policy loans is fixed. that being the case, state law prohibits the rate from exceeding..
8%
143
the maximum rate of interest that may be charged on a defaulted policy for the purposes of reinstatement is?
6%
