Series 7: Variable Annuities (UITs)

Fixed Annuities

-Account grows at a guaranteed rate -A fixed annuity is suitable for a customer seeking preservation of capital

To sell variable annuities, salespersons must be registered with

-FINRA -State insurance commission -State securities commission

In order to recommend a variable annuity to a custome:

-The customer must be informed, in general terms, of the material features of the product -The representative must believe that the customer would benefit from the product's features -The representative must believe that the variable product as a whole, the underlying separate account to which funds are allocated, and riders to the policy are suitable -The representative must sign a statement that all required representations and determinations were completed

During the accumulation phase

All dividends, interest, and capital gains are tax deferred

Guarantee of a minimum growth rate

Can be added to variable annuity account if one pays a higher annual fee for the rider

Regarding mutual funds and variable annuities that are in the ACCUMULATION phase

Distributions to mutual fund shareholders are taxable to the holder in the year the distribution is made Distributions to variable annuity holders are tax deferred, distributions from the underlying mutual fund are NOT taxable to the holder in the year the distribution is made

Rollovers permitted without tax due

Exchange of one variable/insurance annuity contract for another variable/insurance annuity contract Exchange of a life insurance contract for a variable annuity contract

The issuer of a variable annuity bears the

Expense risk- annuity payment must stay the same even if there are increased expense experienced by the insurance company Mortality risk

Unit Refund Annuity

If the contract holder dies earlier than expected, the balance left in the separate account is refunded to a beneficiary

An "annuity unit" of a variable annuity contract is an

accounting measure of the annuity amount to be received by the owner

The "AIR" shown in a variable annuity prospectus is the

conservative illustration of the rate of return of investment

A client surrenders a variable annuity contract 5 years after purchase because of poor performance. Any surrender fee imposed

is NOT deductible

For both mutual funds and variable annuities

-the return to investors is dependent on the performance of the securities in the underlying portfolio -the Investment Company Act of 1940 is the regulating legislation -the underlying portfolios are managed -asset appreciation is untaxed for both

Life Annuity with Period Certain

Annuity payment options will continue payments for a specified time period if the annuitant dies prematurely

The "death benefit" associated with a variable annuity contract

Applies prior to annuitization, means that upon death the insurance company will pay a beneficiary at least the amount invested in the contract

If an individual, age 65, wishes to withdraw money from variable annuity, which is true regarding taxation of withdrawal

Part of the withdrawal is subject to income tax The amount is not subject to 10% penalty tax for early withdrawal

Joint and Last Survivor Annuity

Pays a married couple until the second party dies

During the accumulation phase

Period payments of fixed dollar amounts can be made into the separate account Period payments of varying dollar amount can be made into a separate account

When a variable annuity contract is annuitized

no more payments can be made into the contract

Variable annuities are

non-exempt securities that must be sold with a prospectus considered to be securities that are regulated by the Investment Company Act of 1940

A variable annuity is a

non-exempt security under the Securities Act of 1933 because the purchasers bears the investment risk

An annuitized account in a variable annuity is most similar to

pension payments

Payments into a variable annuity contract are deposited to the insurance company's

separate account

Any changes in value of a variable annuity accumulation unit are directly related to changes in the

value of the securities funding the separate account