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257 Cards in this Set
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- Back
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The primary reason for purchasing life insurance |
To provide death benefits |
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Reserves |
The accounting measurement of an insurer’s future obligations to its policyholders |
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Liquidity |
A company’s ability to make unpredictable payouts to policyowners |
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Multi-line insurers |
Companies that sell more than one line of insurance |
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Nonparticipating company |
Policyholders do not participate in dividends resulting from stock ownership |
Example: a stock company |
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Anyone purchasing insurance from a mutual insurer has what right? |
To vote for members of the board of directors |
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Divisible surplus |
By issuing participating policies that pay policy dividends, mutual insurers allow their policy owners to share in any company earnings |
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Treaty reinsurance |
A common reinsurance contract between two insurance companies which involves an automatic sharing of the risks assumed. |
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Characteristics of a fraternal benefit society |
Nonprofit A lodge system with ritualistic work Maintain a representative form of government with elected officers Formed for reasons other than obtaining insurance |
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1970-Fair Credit Reporting Act |
The authority that requires fair and accurate reporting of information about consumers, Including applications for insurance |
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Insurers |
Who must inform applicants about any investigations that are being made? |
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Insolvent |
When an insurer is unable to pay its claims |
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The primary purpose of a rating service company |
To determine the financial strength of the company being rated. |
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Cancellation |
The voluntary act of terminating an insurance contract |
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Requirements for a contract to be legally enforceable |
1) definite, unqualified proposal(offer) |
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An offer is void when... |
An offer is answered by a counteroffer |
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Consideration |
Value given in exchange for the promises sought |
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What is in the consideration? |
Schedule Amount of premium payments |
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Legal purpose |
The object of the contract and the reason the parties enter into the agreement must be legal |
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Incompetent |
Minors Mentally infirm Under the influence of alcohol or narcotics |
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Aleatory contract |
A contract with an element of chance and potential for unequal exchange of value or consideration for both parties |
Insurance and gambling contracts are typically considered these |
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Adhesion contract |
A contract prepared by one party with no negotiation between the applicant and insurer. |
“Take it or leave it” basis when accepted |
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Who wins with any confusing language in a contract of adhesion? |
The insured |
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Adhesion policy |
A policy in which the insurance company can modify. |
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Unilateral |
Only one party (the insurer) makes any kind of enforceable promise |
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Valued contract |
A contract that pays a stated sum regardless of the actual loss incurred |
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Indemnity contract |
A contract that pays an amount equal to the loss |
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Utmost good faith |
Policyowner and the insurer must know all material facts and relevant information |
Insurance applicants are required to make a full, fair, and honest disclosure of the risk to the agent and insurer |
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Warranty |
A statement made by the applicant that is guaranteed to be true in every respect |
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Representation |
A statement made by the applicant that they consider to be true and accurate to the best of the applicant’s belief |
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Material misrepresentation |
A false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk |
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Concealment |
The failure by the applicant to disclose a known material fact when applying for insurance |
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Insurable interest |
The person acquiring the contract (the applicant) must be subject to loss upon the death, illness, or disability of the person being insured |
An individual must have a reasonable expectation of benefiting from the other person’s continued life. Can only exist at time of the application |
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STOLI (Stranger-Originated Life Insurance) |
Life insurance arrangement where investors persuade individuals (typically seniors) to take out new life insurance, naming the investors as beneficiaries. |
AKA IOLI used to circumvent state insurable interest statutes |
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Agent authority |
What’s given by an insurer to a license to transact insurance on their behalf. |
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Express authority |
The authority a principal deliberately gives to its agent |
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Implied authroity |
Unwritten authority that is not expressly granted, but which the agent is assumed to have in order to transact the business of the principal |
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Apparent authority |
The appearance or assumption of authority based on the actions, words, or deeds of the principal |
It can also exist because of circumstances the principal created |
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When does the law view the agent and the company as one and the same? |
When the agent acts within the scope of his authority |
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When is an insurer liable to the insured for unauthorized acts of its agent? |
When the agency contract is unclear about the authority granted |
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E&O (errors and omissions) |
Liability insurance for insurance agents |
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Waiver |
The voluntary giving up of a legal, given right. |
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What happens if an insurer fails to enforce(waives) a provision of a contract? |
It cannot later deny a claim based on a violation of that provision |
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Void contract |
An agreement without legal effect |
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When can an insurer void an insurance policy? |
If a misrepresentation on the application is proven to be material |
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Voidable contract |
An agreement which, for a reason satisfactory to the court, may be set aside by one of the parties to the contract |
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Industrial life insurance |
Characterized by comparatively small issue amounts, such as $1,000 |
Quite often marketed and purchased as burial insurance |
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Term insurance |
Low-cost insurance protection for a specified period and pays a benefit only if the insured dies during that period. |
Doesn’t build cash value Initial premium is lower than the equivalent for whole life Provides the greatest amount of death benefit per dollar of initial cash outlay |
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Year term |
Term insurance that lasts a certain amount of years |
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Age-term |
Term insurance that last until the age of the insured |
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What are the types of term insurance? |
Level term, decreasing term, and increasing term |
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Decreasing term policy |
Policies that have benefit amounts that decrease gradually over the term of protection and have level premiums |
Credit life insurance Commonly used to protect an insured’s mortgage |
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Increasing term |
Term insurance that provides a death benefit that increases at periodic intervals over the policy’s term |
Usually stated as specific amounts or as a percentage of the original amount |
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Option to Renew |
A guaranteed renewable policy allows the policyowner to renew the term policy before its expiration date, without having to provide evidence of insurability (that is, without having to prove good health) |
The premiums for the renewal period will be higher than the initial period |
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Option to Convert |
Gives the insured the right to convert or exchange the term policy for a while life (or permanent) plan without evidence of insurability |
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What are the two age methods for option to convert? |
Attainted age method Original age method |
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What is most important when an insured owner is trying to decide whether to convert term insurance at the insured’s original age or attained age? |
Cost of insurance |
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Whole life insurance |
Insurance that provides permanent protection for one’s entire life-from the date of issue to the date of the insured’s death |
Benefit payable and premiums remain set at time of policy issued Cash value and maturity at age 100 |
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What is often regarded as a savings element because it represents the amount of money the policyowner will receive if the policy is ever surrendered? |
Cash values |
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The larger the face amount of the policy,... |
The larger the cash values |
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The shorter the premium payment period,... |
The quicker the cash values grow |
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What happens to the death benefit of a loan is outstanding at the time the insured dies? |
The amount of the loan plus any interest due will be subtracted from the death benefit before it is paid. |
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What happens to the premium if the payment period is shorter? |
The premium is higher |
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Level premium approach |
Allows whole life insurance premiums to remain level rather than increase each year with the insured’s age |
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Three notable forms of whole life plans |
Straight whole life Limited pay whole life Single premium whole life |
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Limited pay whole life |
Policies that have level premiums that are limited to a specified numbers of years |
Bests suits a prospective insured who desires permanent insurance but does not want to pay premiums indefinitely Insurance protection extends until the insured’s death or age 100 |
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Single-Premium Whole Life |
A policy that involves a large one-time only premium payment at the beginning of the policy period. From that point the coverage is completely paid for the full life of the policy |
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Common traits of single premium whole life policy |
1) an immediate nonforfeiture value is created 2)an immediate cash value is created 3) a large part of the premium is used to set up the policy’s reserve 4)The advantage offered by a single premium policy is that the policyowner will pay less for the policy than if the premiums were stretched over several years |
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What happens to the cash values if the premium is higher or the paying period is shorter? |
The cash values will grow quicker because a greater percentage of each payment is credited to the policy’s cash values |
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What happens to the growth of cash value compared to a longer premium paying period? |
The cash value grows slower |
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In a limited pay policy, at what rate does the cash value grow AFTER the premium paying period? |
It continues to grow but slower |
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Modified Whole Life |
Whole life Policies that are distinguished by premiums that are lower than typical whole life premiums during the first few years (usually five) and then higher than typical thereafter |
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Equity Index Whole Life |
Whole life insurance where 80-90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index |
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Graded Premium Whole Life |
Whole life ins. Where the premiums are lower than typical whole life rates during the preliminary period after the policy is issued ( usually lasting 5-10 years). The premiums will initially increase yearly during the preliminary period then remain level afterwards |
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MEC (Modified Endowment Contract) |
A policy that is overfunded, according to IRS tables. |
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What are the penalties for a MEC? |
1) penalty taxes (10%) on premature distributions prior to age 59.5 that normally applies to policy loans 2) Any Gaines received from MEC is included in the insured’s gross income for the year and a 10% tax penalty is assessed on the gain of the insured is under the age of 59.5 |
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If there is a material change in the contract after the seven pay test, what happens? |
The 7-pay year applies again |
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Where is the coverage for the spouse on a family plan policy? |
Level term insurance in the form of a rider |
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When does monthly income become available to a beneficiary, in a family income policy? |
If death occurs during a specified period beginning after date of purchase. |
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Family maintenance Policy |
Consists of both whole life and level term insurance, which provides income for a specific period beginning on the date of death of the insured |
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When is the death benefit paid on a joint life policy? |
At the first insured’s death |
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Last Survivor Policy |
Plan covers two lives but the benefit is paid upon the death of the last surviving insured |
Second to die |
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Juvenile insurance |
Insurance that insures a minor |
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Credit Life Insurance |
Insurance designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid |
Beneficiary is usually the lender Decreasing insurance amount matched to the outstanding loan balance |
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Who pays the cost of group credit life insurance? |
The borrower |
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Face Amount Plus Cash Value |
A contract that promises to pay at the insured’s death the face amount of the policy plus a sum equal to the policy’s cash value. |
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Adjustable Life |
A combination of term and permanent insurance into a single plan |
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What is normally a requirement of increasing the face amount of a policy? |
Proof of insurability |
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Universal life insurance |
A term policy with cash value characterized by flexible premiums and an adjustable death benefit. |
Allows its policyowners to determine the amount and frequency of premium payments and adjust the death benefit up or down to reflect changes in needs
Changes are easily made by the policy owner
No new policy is needed when changes are requested |
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Mortality charge |
A charge deducted from a policy’s cash value accumulation for the the cost of the insurance protection |
May include a company expense or loading charge |
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What does the premium cover in an universal life policy? |
Part goes to insurance protection and the other to cash value |
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As premiums are paid and cash value accumulates, interest is credited to the cash value. What determines the interest? |
Current interest rate declared by the company depended on market conditions Guaranteed minimum rate in the contract |
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What happens if a policyowner stops paying the premium and the cash value is not large enough to support the monthly deductions? |
The policy terminates |
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To sell variable insurance, an individual must hold which two licenses? |
1)Life insurance 2)FINRA registered license |
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Entire Contract Provision |
States that the policy document, the application, and any attached riders constitute the entire contract |
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Insuring Clause |
Sets forth the company’s basic promise to pay benefits upon the insured’s death |
Usually not titled as such but appears on the cover of the policy |
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Owner’s Rights Provision |
The person who may name and change beneficiaries, select options available under the policy, and receive any financial benefits from the policy |
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Free-Look Provision |
Gives policy owners the right to return the policy for a full premium refund within a limited period of time after the delivery of the policy |
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Consideration Clause |
States that the policyowner’s consideration consists of completing the application and paying the initial premium |
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What happens if an insured dies during the grace period and the premium has not been paid? |
The policy benefit is payable but the premium amount due is deducted from the death benefits paid to the beneficiary |
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Reinstatement Provision |
A policy is restored to its original status and its values are brought up to date. |
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What are the common requirements to reinstate a lapsed policy? |
1) all back premiums must be paid 2) interest on past-due premiums may be required to be paid 3)any outstanding loans on the lapsed policy may be required to be paid 4)policyowner typically will be asked to prove insurability |
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Policy Loan Provision |
Policyowners may borrow money from the cash values of their policies |
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What is the difference between universal and whole life? |
Partial withdrawals can be made from the policy’s cash value amount in universal |
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What happens if a policy loan is not repaid by the time the insured dies? |
The loan balance and any interest accrued are deducted from the policy proceeds at the time of claim |
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What is the collateral for a policy loan? |
The cash value of the policy |
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What are Some newer policies with a variable interest rate tied to? |
Moody’s corporate bond index |
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What happens if the policy owner doesn’t make a scheduled interest payment on a policy loan? |
The amount of the interest due will be added to the loan balance |
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What happens if a policy loan plus interest exceeds a life insurance policy’s cash value? |
The policy is no longer in force. |
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Incontestable Clause |
Specifies that after a certain period of time has elapsed (usually two years from the issue date) the insurer no longer has the right to contest the validity of the life insurance policy so long as the contract continues in force |
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When can an insurer contest a claim? |
During the contestable periods |
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What are the 3 situations to which the incontestable Clause does not apply? |
1) Impersonation 2) no insurable interest 3) intent to murder |
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Absolute assignment |
The transfer is complete and irrevocable and the assignee receives receives full control over the policy and full rights to its benefits |
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Collateral assignment |
A policy is designated to a creditor as security, or collateral, for a debt. If the insured dies, the creditor is entitled to be reimbursed out of the benefit proceeds for the amount owed |
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Surrender charge |
The cost of giving up a policy for the cash value. |
The company must disclose this and usually assess this unless the policy has been in force for a certain number of years |
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Suicide Provision |
Protects the insurer against the purchase of a policy in contemplation of suicide |
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Misstatement of Age or Sex Provision |
The company reserves the right to make an adjustment if the age of the insured is misstated |
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Automatic Premium Loan Provision |
This provision authorized the insurer to withdraw from the policy’s cash value the amount of overdue premium of the premium has not been paid by the end of the grace period |
Most importantly, the policy does not lapse and coverage continues |
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Discretionary provisions are designed to protect who? |
The insurance company |
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Most common exclusions |
War Aviation Hazardous occupations/ hobbies Commission of a felony Suicide |
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Nonforfeiture Option |
You are allowed to stop paying premiums and not forfeit any of the equity in the policy |
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Cash Surrender Option |
Insurers are required to make cash surrender values available for ordinary whole life insurance after the first three policy years |
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How long can an insurer postpone payment of cash surrender values? |
Up to six months |
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What can allow the policyowner to withdraw the policy’s cash value interest free? |
Partial surrender |
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Extended Term Option |
Uses the policy’s cash value to purchase a level term insurance policy on an amount equal to the original policy’s face value, for as long a period as the cash value will purchase |
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Equity Index Universal Life Insurance |
Permanent life insurance that allows policyholders to link accumulation values to an outside equity index (like S&P 500) |
Typically contains a minimum guaranteed fixed interest rate |
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What is the difference between participating and nonparticipating policy? |
The presence of policy dividends |
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If fewer insurers have died than was estimated and a divisible surplus results, what does the company do? |
The company can return to the policyowners a part of the premiums paid for participating policies |
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Policy dividends |
A return of part of the premiums paid. |
Not taxable income |
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What must be included in a whole life policy that provides a choice of dividend options? |
A statement that dividends are not guaranteed. |
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What determines the amount of the paid-up addition that is purchased each year? |
1)The insured’s attained age 2)The amount of dividend paid 3)the type of coverage paid |
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Guaranteed Insurability Option Rider |
Allows a policyowner to purchase additional life insurance coverage at specified dates without providing evidence of insurability |
Costs for new coverages purchased under this rider are calculated on the basis of the insured’s attained age This rider will also allow the policyowner to purchase additional coverage at marriage or the birth of a child |
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Waiver of Premium Rider |
Prevents a policy from lapsing for nonpayment if premiums while the insured is disabled and unable to work |
Available on both permanent and term insurance policies |
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For a waiver of a premium rider to activate, how long must the insured be seriously disabled? |
Usually 90 days or six months |
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What is required for a waiver of premium rider to become operative? |
The insured must meet the policy’s definition of “totally disabled” |
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Payout provision or Rider |
Provides a waiver of premiums if the adult premium-payor should die or, with some policies, become totally disabled |
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What happens to the cash value of the return on the index exceeds the policy’s guaranteed rate of return? |
You receive the max interest returned |
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Return of Premium Rider |
Provides that in the event of the death of the insured within a specified period of time, the policy will pay, in addition to the face amount, an amount equal to the sum of all premiums paid to date |
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Life insurance is based on which three factors? |
1) mortality factor 2) interest factor 3) expense factor |
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Mortality Factor |
A measure of the number of deaths in a given population |
Based on a large risk pool of people and time |
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Interest factor |
Insurance companies invest the premiums they receive in an effort to earn interest |
One of the ways an insurance company can lower the premium rates |
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Premium Mode |
Refers to the policy feature that permits the policyowner to select the timing of premium payments |
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Mode of Premium provision |
An additional charge for a policy due to a policyowner wanting to make payments more than once a year |
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What happens to premiums as the frequency of payments increases? |
The premiums increase |
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Level premium funding |
The policyowner pays more on the early years for protection to help cover the cost in later years which allows the premium s to remain level throughout the life of the policy |
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Single premium funding |
The policyowner pays a single premium that provides protection for life as a paid-up policy |
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How does the cash value of a whole life insurance policy during the early policy years? |
Typically less than the premium paid. |
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Where to part of premium payments go with a variable life policy? |
A separate account |
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Cost Basis |
The total of the premiums paid into the policy minus total dividends received in cash or used to offset premiums |
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Death Benefit Settlement Options |
1) Lump Sum 2) Interest Only 3) Fixed Period 4) Fixed Amount 5) Life Income |
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Fixed |
Single payment |
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Interest Only |
Company holds death benefit for a period of time and pays only the interest earned to the named beneficiary at least annually |
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Fixed Period (Period certain) |
Death benefit proceed is paid in equal installments over a set period |
Part of the installments paid to the beneficiary consists of interest calculated on the proceeds of the policy. The dollar amount of each installment depends upon the total number of installments |
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Fixed Amount |
Pays a death benefit in specified installment amounts until the principal and interest are exhausted. |
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Joint and survivor option |
Guaranteed that benefits will be payed on a life-long basis to two or more people |
This option may include a period certain and the amount payable is based on the ages of the beneficiaries |
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Viatical settlement |
Allows someone with a terminal illness to sell their existing life insurance policy to a third party for a percentage of the face value |
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How can life insurance proceeds be paid without tax penalty? |
If taken as a lump sum. |
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1035 Exchange |
When an existing life insurance policy is assigned to another insurer for a new contract, the transaction may be treated for tax purposes as a section 1035 exchange. |
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T |
1) products do not guarantee contract cash values 2) the policyowner who assumes the investment risk |
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Two types of costs index |
Surrender cost index Net Payment Cost Index |
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Beneficiary |
The person or entity designated in the policy to receive the death procedes |
Can be either specific or a class designation If no one named, or if all die before the insured dies, death benefit will go to insured’s estate |
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Irrevocable |
Per Stirpes Per Capita |
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Revocable |
Able to change at any time without notifying or getting permission |
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Irrevocable |
May not be changed without the written consent of the beneficiary |
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Who is considered to have unlimited insurable interest in themselves? |
An individual |
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When in life insurance must insurable interest exist only? |
At policy inception |
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What is the positive of placing a policy value into separate accounts? |
Policyowners can participate directly in the account’s investment performance |
Will earn a variable return |
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Variable insurance are considered which type of contracts? |
Securities and insurance |
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Variable insurance is regulated by who? |
State offices of insurance regulation AND SEC |
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What part of the application asks about the proposed insured, including name, age, address, birthdate, sex, income, marital status, and occupation? |
Part 1-General |
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What part of the application focuses on the proposed insured’s health and asks a number of questions about health history? |
Part 2-Medical |
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What part of the application provides additional information about the applicant’s financial condition and character, the background and purpose of the sale, and how long the agent has known the applicant? |
Part 3-Agent’s Report |
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Who identifies life insurance in force with other carriers as well as lifestyle habits such as drug use? |
MIB (Medical Information Bureau) |
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Who can the MIB release information received about a proposed insured to? |
The proposed insured’s physician |
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What is the purpose of the USA Patriot Act? |
To detect and deter terrorism |
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Representations |
Statements an applicant makes as being substantially true to the best of the applicant’s knowledge and belief |
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Warranty |
Statements that are guaranteed to be correct |
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Who is all required to sign an application? |
The proposed adult insured The policyowner The agent who solicits the application |
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Why is the applicant’s signature required? |
To represent that the statements on the application are true to the best of the applicant’s knowledge |
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How are changes made in an application? |
The applicant can have the agent correct the information, but the applicant must initial the correction |
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What happens if a premium is not paid with the application? |
The agent should submit the application to the insurance company without the premium. The policy is not valid until initial premium is collected |
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Conditional receipt |
Provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the app was signed or the date of the medical exam |
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Binding Receipts |
Coverage is guaranteed until the insurer formally rejects the application even if the proposed is ultimately found to be uninsurable. |
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Once |
To use premiums based on an earlier age |
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How do most insurers feel about backdating? |
Many are willing to let an applicant do so |
Save age |
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What is the applicant’s right when an investigative consumer report is used in connection with an insurance application? |
To receive a copy of the report |
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What happens after the company decides to issue the policy after underwriting? |
The contract is sent to the sales agent for delivery to the applicant |
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Constructive Delivery |
Accomplished technically if the insurance company intentionally relinquishes all control over the policy and turns it over to someone acting for the policyowner, including the company’s own agent |
Mailing the policy to the agent for unconditional delivery to the policyowner, even if the agent never personally delivers the policy |
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I |
The agent has a timely opportunity to review the contract and its provisions, exclusions, and riders. |
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What does explaining the policy and how it meets the owner’s specific objectives help? |
It helps avert misunderstandings, policy returns, and potential lapses |
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What is common company practice if the initial premium is not paid until the agent delivers the policy? |
Before leaving the policy, the agent must collect the premium and obtain from the insured a signed statement attesting to the insured’s continued good health |
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What is an insurer’s obligation involving the disclosure of an insured’s nonpublic information? |
To give notice, explain, and Allow opting out |
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If an insurance company obtains an inspection report on a prospective insured , Permissible by the Fair Credit Reporting Act, who must they inform? |
The prospect |
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Fair Credit Reporting Act of 1970 |
A federal law in which a financial institution that requests a consumer report must inform the consumer. |
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Risk classification |
How the underwriter seeks to classify the risk that the applicant poses to the insurer |
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What are some characteristics of preferred risk? |
Not smoking Weight within an ideal range Not drinking |
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What usually happens to someone who is accepted with a substandard risk? |
They pay a higher premium. |
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What is an agent required to deliver to the applicant before accepting the initial premium? |
Life Insurance Buyer’s Guide and a Policy Summary |
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What happens if an agent submits an incomplete application? |
The insurance company will return the application |
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How is group life insurance usually written? |
As an annually renewable term policy |
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Contributory Plan |
An employee group insurance plan on which employees share the cost |
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Non contributory plan |
The employer pays the entire cost of the plan |
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What does an individual receive in a group plan since they don’t own or control the policy? |
Certificate of insurance |
Aka certificate of coverage and benefits |
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Master policy |
The actually policy the employers receive |
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Under what conditions can group life insurance be formed by other organizations? |
As long as they are formed for a reason other than to obtain insurance |
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Why do insurers require a minimum number of group members/employees to participate in a group plan? |
To minimize adverse selection |
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True or false: an individual is covered under the group policy during the conversion period. |
True |
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Annuitant |
Income recipient |
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What do you need to calculate the payment of an annuity? |
The original sum of money Length of the payout period The interest rate of the annuity earns |
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What is used to discourage withdrawals and exchanges in an annuity? |
Surrender charges |
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Who can continue the contract of an annuity with deferred taxation as contingent owner? |
A spouse |
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What happens to the accumulation period of an annuity after the purchase payments cease? |
It may continue |
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Payout period |
The point at which the annuity ceases to be an accumulation vehicle and begins to generate benefit payments at regular intervals |
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Which annuity lacks an accumulation period? |
Immediate annuities |
Also called a single premium SPIA Intended for liquidation of a principal sum |
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Which annuity pays the largest monthly benefit to a single annuitant because it is based only on life expectancy? |
Straight Life Income Option |
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What is the major risk of straight Life Income Annuity? |
It creates a risk that the annuitant May die early and forfeit much of the value of the annuity to the insurance company. |
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Cash refund Option |
Provides a guaranteed income to the annuitant for life. |
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For a cash refund option, if the annuitant dies before the annuity fund is depleted, what happens to the remaining balance? |
A lump-sum cash payment of the remaining balance is made to the annuitant’s beneficiary |
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Joint and Full Survivor Annuity Option |
If either of two people die, the same income payments continue to Survivor for life. When the surviving annuitant dies, no further payments are made to anyone. |
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Period Certain Income Option |
Guarantees benefit payments for a minimum number of years, such as 10, 15, or 20 years, regardless of when the annuitant dies |
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Fixed Annuities |
Provide a guaranteed rate of return |
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What happens when a fixed annuity is converted to a payout mode? |
The fixed annuity provides a guaranteed fixed benefit amount to the annuitant |
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Because the benefit amount is fixed, what happens to the purchasing power of their income payments? |
The power will decline over the years due to inflation |
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Variable annuities shift investment risk from who to who? |
From the insurer to the contract owner |
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Can an annuity simultaneously accept periodic funding payments by the annuitant and pay out income to the annuitant? |
No |
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Where do variable annuities invest deferred annuity payments where? |
An insurer’s separate accounts |
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What must you have to sell variable annuities? |
FINRA registers State insurance license |
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What fluctuates in a variable annuity? |
The value of the annuity The amount of annuity income even after the contract has annuitized |
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What is the value of one annuity unit? |
It varies month to month, depending on investment results |
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Which type of annuity is guaranteed to long-term inflation protection? |
Equity Indexed Annuities |
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Market Value Adjusted Annuity |
An annuity whose interest rate is guaranteed fixed if the contract is held for the period specified in the policy |
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What applies when an MVA annuity owner decides to surrender the contract? |
Surrender charge and a market-value adjustment |
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What is the effect of the market value adjustment? |
To shift some of the investment risk to the owner |
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How is interest taxes on an annuity? |
As ordinary income |
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Exclusion ratio |
Used to determine the amount of annual annuity income exempt from federal income taxes |
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Deferred annuities |
Accumulate interest earnings on a tax-deferred basis and provide income payments at some specified future date (normally within a minimum of 12 months after date of purchase) |
Can be funded with periodic payments over time |
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Cost basis |
The amount of money paid into the annuity (the premium) |
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How do deferred annuities accumulate in regards to taxes? |
Tax-deferred basis. No taxes are imposed on the annuity during the accumulation phase, taxes are imposed when the contract begins to pay its benefits. |
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True or false: an annuity can be exchanged tax-free for a life insurance contract |
False 1035 contract |
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TSA |
Tax-sheltered annuity |
403(b) plan |
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Upon retirement, how are payments received by employees from the accumulated savings in TSAs? |
Ordinary income |
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What is an agent required to obtain from a senior to determine suitability? |
Financial status Tax status Risk tolerance |
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What is another name for social security? |
Old Age, Survivors, and Disability Insurance |
OASDI |
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Fully insured status |
40 Quarters of Credit (10years) |
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Primary insurance Amount |
Determines the full amount of retirement benefits for an eligible person |
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Disability |
Describes an employee who is unable to engage in any occupation. |
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What makes up the accumulation value of a deferred annuity? |
The sum of the premium paid plus interest earned minus expenses and withdrawals |
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How long, according to SS, must a person be disabled to receive disability benefits? |
5 months |
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Disability |
An employee who is unable to engage in any occupation |
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Which type of retirement plans meet federal requirements and receive favorable tax treatment? |
Qualified plans |
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Exclusive benefit rule |
Assets held in a company’s qualified retirement plan must be maintained for the exclusive benefit of the employees and their beneficiaries |
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When are benefit payments initiated? |
After the contract becomes annuitized. |
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What covers the costs associated with selling and issuing contracts as well as costs associated with the insurer’s need to liquidate underlying investment at a possibly inappropriate time. |
Surrender charges |
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When do deferred annuity contracts waive the surrender charge? |
When the annuitant dies or becomes disabled. |
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“Bailout” provisiib |
Allows the annuity owner to surrender the annuity without surrender charges if interest rates fall below a stated level within a specified time period |
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Which annuity guarantees protection against exhaustion of savings due to longevity? |
Straight Life Income Option |
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Exclusive benefit rulewhich |
Assets held in a company’s qualified retirement plan must be maintained for the exclusive benefit of the employees and their beneficiaries |
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