Unit 12- Variable Annuities

Front 1

Is refinancing your home to draw out equity to fund a VA considered an abusive sales tactic?

Back 1

Yes, so is cashing out life insurance policies or other VAs since steep surrender charges

Front 2

What is an immediate annuity?

Back 2

lump sum investment, no accumulation period, payments begin immediately, distributions fluctuate due to performance in the separate account

Front 3

Does an annuity guarantee an earnings rate?

Back 3

No, but it does guarantee payments for life (mortality)

Front 4

Do owners of VAs have voting rights?

Back 4

Yes, may vote on changes in investment policy and for an investment adviser

Front 5

Are withdrawals from nonqualified VAs made of FIFO or LIFO bases?

Back 5

LIFO, so taxable earnings are considered taken out before principal

Front 6

What are the risks associate with an insurance company when it comes to its policyholders?

Back 6

Risk that an annuitant lives longer than expected or that a life policy holder dies sooner than expected

Front 7

Is an annuitant protected by the insurance company from capital losses when buying a VA?

Back 7

No, annuitant assumes the investment risk

Front 8

Why are CDs not considered a security?

Back 8

because they are insured which thereby eliminates risk and guarantees a return, also why insurance products are not securities

Front 9

What is one of the main benefits of owning a VA?

Back 9

protects against purchasing power risk

Front 10

What is an ideal candidate for a VA?

Back 10

One who already maxed out 401k or IRA contributions and has extra cash to invest and wants to minimize tax consequences of being in high income bracket, preservation of capital isn't a goal, and doesn't need the money right away

Front 11

Why does a life annuity have the largest monthly payout?

Back 11

Because it is less risk assumed by insurance company, there is no beneficiary

Front 12

Are the number of accumulation units fixed in a variable annuity?

Back 12

Can rise during accumulation period when additional units being purchase. When annuitized, number of annuity units is fixed

Front 13

Do VA salesmen need to be registered with state banking commission?

Back 13

No, but do with FINRA and state insurance dept

Front 14

How do the earnings grow within a VA?

Back 14

They are tax deferred

Front 15

When a VA contract is annuitized, how is the account's current value calculated?

Back 15

number of accumulation units multiplied by the unit value

Front 16

Do variable life insurance and variable annuity investments use the same separate account>?

Back 16

yes

Front 17

What represents units of ownership in a life insurance company's separate account?

Back 17

Accumulation units

Front 18

Does a VA need to be accompanied by a prospectus and filed with the SEC?

Back 18

yes and yes

Front 19

During payout period, are payments based on a fixed or variable amount of annuity units?

Back 19

fixed, but the value of each annuity unit varies from month to month according to separate account in comparison to the assumed interest rate

Front 20

How is a withdrawal from a nonqualified annuity taxed if it is taken out before 59 1/2?

Back 20

taxes are paid on interest earned plus an additional 10% penalty

Front 21

How is a VAs payout determined?

Back 21

comparing account performance with AIR, and this month's payout with last month's payout

Front 22

What is the waiver of premium?

Back 22

Benefit on qualified life insurance contracts, in form of a rider which provides for waiver of premium payments if policyholder becomes totally disabled

Front 23

How are the death benefits of an annuity treated?

Back 23

usually paid in lump sum, beneficiary is taxed at ordinary income rated during year the sum is received, amount taxed is over the cost basis of deceased's investment

Front 24

What is the mortality guarantee?

Back 24

guarantees payments for life, though the amount is not guaranteed

Front 25

What kind of annuity contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant?

Back 25

joint life with last survivor

Front 26

What does nonqualified mean?

Back 26

paid for with after-tax dollars (no tax deduction)

Front 27

What is the main purpose of variable life insurance?

Back 27

insurance features, not its investment features

Front 28

What kind of contract is paid to both parties while both are alive but when the first party dies, the annuity payment is made to the survivor until death, and then all payments cease?

Back 28

joint-and-last-survivor

Front 29

What is the most important consideration to get across to a client when recommending a VA?

Back 29

benefit payments will fluctuate with the investment performance of separate account

Front 30

A VA is a combo of what two products?

Back 30

insurance contract and a mutual fund

Front 31

What is a life annuity with 10yr period certain?

Back 31

annuitant will receive payments for life, subject to a minimum of 10 yrs, if dies during 10 yr period, the remaining time is paid to a beneficiary

Front 32

When is a variable annuity allowed to be surrendered?

Back 32

only during the accumulation period