S6 Chapter 7

When is the death benefit calculated in a variable life policy?

on an annual basis

Who are SIMPLE plans for?

adopted for small business , 100 or fewer, who do not have another qualified plan. can be IRA or 401K plans, fully vested. pretax

What factors are used for the payout of annuity units?

age principal payout option AIR

Contributions for an IRA can go up to?

age 70 1/2

What 1035 exchange is not permitied?

annuity to a life policy

What is a defined contribution plan?

employees direct the employer to withhold a defined amount of compensation

Funding a defined benefit plan is on the?

employer and they bear the investment risk

What are SEP plans?

established by corporations for smaller employers. They set up IRAs for the employees and is funded by the employer, up to 25% of the employees salary Fully vested.

Most annuities charge this type of sales charge?

CDSC when the investor withdraws money during the accumulation period

When the contract is annuitized, payout options cannont....

CHANGE, they are fixed at that point

What is the maximum sales charge for a variable insurance policy?

9%

One vote is connected to this amount of contract value?

$100

What is the expense charge?

% of the account value used for operating expenses

The mortality expense charge is a ?

% of the contract value, in the range of 1 - 1.25%

VUL have this type of general account

THEY DONT HAVE ONE and no guarantees

Growth in a variable life insurance is dependent on ?

the performance in the separate account

The cash value of variable insurance is based on?

the performance of the underlying investments in the separate account and happens at least monthly

In variable universal life policies (VUL) premiums are paid into?

the separate account with no guarantees as to death benefits or cash value flexible premiums

What happens if policies fail to meet the 7-pay test?

they are classified as MECs, which prior to age 59 1/2 are subject to ordinary tax income plus 10% penalty. death benefit is tax free

What is the conversion or contract exchange?

insurance companies are required to provide a 24 month, conversion window that allows variable policy owners to convert their contracts into a WHOLE LIFE from the date of issuance without evidence of insurability

Nonqualified plans are :

457 plans for religious or non profit deferred compensation plans

Withdrawals on variable life insurance products are treated as?

FIFO, they are not taxable until the cost basis of premiums is exhausted.

Sales in a separate account must be accompanied by a?

Prospectus

What plan would you establish in addition to a 401K plan?

Roth plans

Variable annuities and variable life insurance are both regulated by?

SEC and investment act of 1940

Policy surrenders are treated as?

a cancellation and is taxed on the earnings

What are ESOPs?

a defined contribution plan, where the employer contributions are used to purchase stock. held in a trust

A variable life insurance is a permanent policy designed to offer more competitive returns to act as ?

a hedge against inflation

A full surrender has a payout feature of?

a lump sum distribution

What are non-qualified annuities?

contracts purchased with AFTER-tax dollars

What are the requirements for SEP plans?

21 or older 600 annual income in the last 3 out of 5 years.

Insurance companies must allow policy holders to borrow against their policys cash value in this amount?

75% and the policy must be in force for a specified minimum time period

What is charged if the client cancels the account

A surrender charge and this applies to a specific time period of the contract

What is a 1035 exchange?

A tax-free exchange of one annuity for another, allowed under Section 1035 of the Tax Code.

What type of retirement plan does ERISA require employers to establish for employees? A - defined contribution B - profit-sharing C - defined benefit D - ERISA does not require an employer to establish any type of retirement plan for their employees

D - ERISA does not require an employer to establish any type of retirement plan for their employees

What do you need to have to sell these products?

FINRA RR series 6/7, a state securities (63) and a state life insurance license

Nonqualified plans uses this for surrenders or withdrawals?

LIFO, comes from the earnings first then the original cost basis

Tax free 1035 exchanges is permitted for?

Life to life insurance annuity to annuity life insurance to annuity

What are the pay out options for an annuity?

Lump sum or annuitization which pays out over the life or a specific period of time

The death benefits taxation is?

NOT subject to income tax when paid to the beneficiary

Variable annuities must be registered with?

The SEC under the investment company act of 1940

What is a deferred compensation arrangement?

a nonqualified retirement plan in which employees defer a portion of their income to a specified later date. the goal is to be in a lower tax bracket

What are "subaccounts" according to the policy?

a policy owner can allocate premium and account value dollars to a variety of investment accounts within the separate account

The premiums for a variable life insurance go into?

a portion into the general account to cover the face amount and the remaining will go into the separate account to be invested by the policy owner.

What is a 401K plan

a type of defined contribution where the employee elects to take a salary deduction

What is the cash value that provides living benefits to the owner?

accumulated portions of premiums and their earnings

Investments made into a variable contracts are used to purchase what?

accumulation units

What charges are deducted from the premiums?

admin fees state premium taxes sales charge

What is the contribution limits for qualified plans?

annual 6% excess contribution penalty until the excess is withdrawn

What is life income ( pure or straight life)?

annuity income is payable for as long as the annuitant lives and payments stop upon death. highest monthly income

What is joint and last survivor?

annuity income is payable to 2 named annuitants. upon death of one the benefits continue and could be reduced based on the contract

If the performance of the separate account is less than the AIR, the amount of next payment will

decrease

qualified plans are:

defined benefit hr-10 profit sharing 403(b) 401(k)

What charges are deducted from the separate account?

expense risk fee mortality risk free investment management fee

The premium on a variable life insurance is?

fixed and level premium

For whole life insurance, the policy is?

fixed and the premiums remain level throughout. will remain in force as long as premiums are paid

Periodic premiums for an annuity can be?

fixed or flexible

People whom are not active participants in other plans can deduct what in their IRA?

fully deduct contributions regardless of income

ERISA plans that are not regulated are:

government municipality nonprofit individual plans

The death benefits for a variable life insurance policy is ?

has a face amount that is guaranteed a minimum and can fluctuate based on the performance

What is life income period certain?

income is payable for life or a specific period of time. if they live beyond the period benefits continue. if the owner dies prior to the end of the period, the balance of the payments will be paid to a beneficiary

If the performance of the separate account is greater than the AIR, the amount of next payment will

increase

The separate account is considered a?

investment company

What is an annuity?

is a contract issued by life insurance companies in which the purchaser makes premiums that are invested in a tax-deferred account. designed to pay a future income stream.

Put in order highest annuity payment to lowest; joint and last survivor life income period certain life income with refund life income

life income life income period certain life income with refund joint and last survivor

What is a modified endowment contract?

limits premiums paid into a policy during the first 7 years to the total schedule premiums that would have been paid on a comparable traditional whole life policy.

What are the requirements for a SIMPLE plan?

must have earned 5K during any 2 years before the current year

When does an insurance company take ownership of the funds in an annuity?

once the contract is annuitized

What is life income with refund?

payable for lifetime upon death if the annuitant has not gotten an amount equal to the total of all payments (not growth) the balance is refunded to the beneficiary

What is another name for a defined benefit plan?

pension plan

ERISA regulates what type of plans?

private sector retirement plans

AIR is used to?

project the rate of growth of the separate account during the payout period.

What is the "long-term care rider"?

provides insurance in the event the annuitant qualifies for home health care or nursing home care.

If the performance of the separate account is the same as the AIR, the amount of next payment will

same as the prior month

HR-10 plans are for?

self employed persons, the employer is allowed to contribute the lesser of 25% of post contribution income which is equal to 20% of earnings.

The separate account valuation happens when?

similar to mutual funds EOD NAV

What is the stepped-up death benefit?

some products will have this, guarantees a death benefit based on the account value as of a specified date there is a charge for this

Under a nonqualified annuity contract earnings are?

subject to ordinary tax

Cash value of both variable and traditional products grow?

tax deferred

403(b) plans is a qualified?

tax-sheltered annuity, can also be referred to as a tax-deferred annuity

death benefits in a nonqualified plan are subject to?

taxes above the contracts cost basis

once a variable annuity contract application is complete what happens next?

the RR transmits it to their office of supervisory jurisdiction (OSJ) to be reviewed and approved by a principal of the firm within 7 business days of receipt

The exclusion ratio determines?

the amount of an annuity payment subject to income tax

What happens if the annuitant dies during the accumulation period?

the beneficiary will receive the greater of the current value of the contract or the owners cumulative premiums paid

What are some of the differences to universal life insurance?

the company will deduct mortality and expense loads directly from the cash value premiums are flexible as long as there is enough in the cash account to cover the expenses has adjustable death benefit builds cash at a minimum interest rate but could be higher

Who assumes the investment risk for a variable annuity?

the contract owner since there is no guarantees to performance based on the issuer

What is the surrender value?

the current cash value less any surrender chargers. This is the amount that gets paid to the policy owner

What is the face amount?

the death benefit of the policy that will be paid out to the beneficiary upon death of the insured.

People whom are active participants in other plans can deduct what in their IRA?

the deductibility is based on their AGI

In a defined benefit plan who makes the contributions?

the employer

Premiums and payments for a whole-life insurance are placed in?

the general account, where the insurance company will invest and has a minimum rate of return that guaranteed. the insurance company bears the investment risk

How does voting work for a variable product?

the insurance company is the only person with the right to vote, but votes by proxy for each owner

What happens if the current rate of return is greater than the minimum?

the insurance company will pay out and this will build up additional cash value

An IRA maximum annual contribution is?

the lesser of a specified annual limit or 100% of earned income

What is the free look provision?

the owner can return and receive a full refund of all premiums paid within 45 days of the application or 10 days from the receipt of the policy, whichever is later

AUV =

value of securities in the separate account / total number of accumulation units outstanding EOD close

People who want to hedge against inflation would purchase?

variable annuities

What is the waiver of surrender charges?

will waive or reduce the penalty if needed due to a disability or confinement in a nursing home

When are 1035 exchanges deemed inappropriate?

within 36 months

What happens if the account performance deteriorates while you have a loan against it?

you get a grace period of 31 days, to repay a portion of the outstanding loans