SIE Chapter 12 Terms

Riders

-are special optional fetures that can be added at the requeset of the custeomer for an additional cost -must be disclosed to the customer before a decision to purchase is made

Early Withdrawals

-before an investor reaches age 59 1/2 are generally subject to a 10% tax penaltty in addition to any gain being taxed as ordinary income

Redemption or Surrender Fee

-charge for the liquidation or surrender of the contract udring the accumulation period

Sales Charges or Sales Load

-charges to investors when purchase payments are made on a mutual fund or varaiabel annuity investment -must be fair and reasonable

Administrative Expenses

-compensation that is paid to the issuer of the annuity contraccts for services such as recordkeeping, accounting, computation of daily unit values, etc.

Annuity Unit (Pay-out Period)

-determines the amount of each payment to the annuitant -changes in the value are related to securities in the Separate Account

Separate Account

-established by an insurance company to hold the investment portfolio which supports the variable contract issued by the insruance company

Investment Management Fee

-fee paid to oversee or manage the porfolio of securities in teh Separate Account -fee is based on teh average daily net assets in the separate account

Primary Purpose of Life Insurance

-income replacement for the Beneficiary or Beneficiaries of a life insurance policy related to the life of the Insured person

Single Premium Immediate or Lump-Sum Purchase

-investors make one lump-sum purchase and immediately begin to receive benefit payments

Expense Risk Charge

-is a charge which an issuer can make for guranteeing the maximum level of expenses it will incur in administering the contract

General Account

-is a limited investment account estagblished by insurance companies basically for investments to be made from insurance premium paid -lmited by law as to what types of invesmtsnt can be made in the account

Disability Waver of Premium Benefits

-an optional benefit with separate charges that a contract holder can purchase to ensure that premium payments will be made in the even of a disability

Minimum Death Benefit

-a charge for the provision that either the original invesmtn or current value of the contract, whichever is higher, will be paid upon death during the accumulation period

Brokerage Fee

-a fee charged by broker dealers handling separate account porfolio transactions

Surrender Charge

-a fee that a policyholder will incur when selling, cashing in, or cancelling an insurance or annuity policy

Single Payment Deferred Annuity

-allows investors to make a lump-sum pruchase and defer the receipt of payments to a later date

Periodic Payment Deferred Annuity

-allows investors to make monthly, quarterly, semi-annual, or annual payments over a period of time at a fixed sale load

Tax Free "1035" Exchanges

-allows the contract holder of a variable annuity to exhange their existing contract for a new variable annuity contract without pyaing any tax on the income and investment gains on their current variable annuity -a principal of an OSJ Branch Office has 7 business days to approve applications

Non-tax Quallified Annuity

-an annuity where after-tax dollars are contributed by an individual investor buy a contract -upon retirement, only hte excess over the amount contributed is taxable

Annuity

-is a series of period paymetns paid to an annuitant for life usually for retirement income or can be paid to an annuitant and their beneficiary for a minimum period -investment objective of long-term capital appreciation -issued by life insurance companies

Permanent Life Insurance

-lifetime insurance assuming premiums are paid as they come -provides a death benefit and cash surrender value -market risk is the greaetst risk asscoiated with variable life and variable universal insurance since variable proucts invest in securities

Registered Representative who Sell Vaiable Annuities

-must hold both a life insuarance license and a securities license

Variable Annuity

-pays a fluctuating dollar amount each period -annuitant bears the investment risk -made up of an investment portfolio of mutual funds and other professionally managed securities held in a sepcial, tax-deffered account of the insureance compnay called the separate account -considered to be long term investments and provid a possible hedge aginast inflaition

Fixed Annuity

-pays the same predetermiend dollar amount each period -insurance company bears the investment risk

Bonus Annuities

-provide an extra 3%-5% premium credit as an incentive to buy -typically comes with a higher contract costs and longer surrender periods subject to surrender charges

Equity Indexed Annuities

-provide annuity payments linked to a specific stock index -ifthe index increases, the contract holder is credited with at least part of the gian, but htere is generally a cap on the percentage return -if the index decreases, the contract holder will suffer a losts but is guaranteed a mminimum return

Joint and Last Survivor Annuity

-regular paymetns are made to a couple and would continue to be paid until both persons die

Subscription-Way Transaction

-situation where a registered representative meets with a client or potential client to discuss a security or securities to assist the client in completing an application for the purchaase of securities and obtains a check from the client -the firm may hold a client's check for up to 7 business days from the date atht an OSJ receives a complete and correct application

State Premium Taxes

-taxes on the gross payments made on a life insurance policy or an annuity contract

Term Insurance

-temporary insurance which is only good for a set period of time -provides a death benefit only -there are no cash values

Insurance Premium

-the amount a policyholder pays for a life insurance policy -generally paid with after-tax dollars and are not tax-deductible

Cash Surrender Value

-the amount available in cash upon the voluntary termination of a policy if the policyholder surrenders or cancels the policy before it becomes payable by death

When Purchasing a Variable Annuity, consider

-the financial soundness of the issuer, -the return, and -the sales charges, cost of adding riders, and other fees

Annuitant

-the individual who will receive annuity payments from a contract

Contract Hodler (annuity holder)

-the invesor that buys the variable annuity -must receive a prospectus at the time of purchase -must receive a statement of addiitional information, if the contract holder request the information -has a choise of investments, therefore has investment risk, and is NOT protected against capital loss if the value of the SEeparate Account declines

Qualified or Tax Qualified Annuity

-the investor contributed pre-tax dolllars, usually in an employer-sponsored retirement plan -upon retirement the distributions are taxed as ordinary income

Unit Refund Annuity

-the investor or beneficiary is guaranteed the payment of a set number of units (not a fixed number of dollars)

Installments for a Fixed Amount

-the investor receiveds a fixed amount set in the contract, until the account is extinguished

Installments for a Period Certain

-the investor receives payments for a designated period and payments are then halted whether or not the investeor is still living

Life Annuity-Period Certain

-the investor will revceive regular paymetns until deather, but if the investor dies, payments would continue to be paid to the beneficiary for the remainder of a pre-determined period

Risks associated with Variable Annuities

-the value of the securities will not keep pace with inflation -during recessions or depressions the value of the annuity units may decline significatnly -the annuitant cannot afford a decrease in their current income

Accumulation Unit (Pay-In Period)

-used to determine the contract owner's interst in the separate account -value of these units is deteremined by the value of the securities in teh separeate account and is not determined by mortality tables -earnings are tax defferred until annuity payments begin -owner can withdraw the cash surrender value of the contract, althoguh penalties may be incurred

Annuitization

-when the annuity owner selects a payout option, accumuulation units are exchanged for annuity units -value of the accumulation units is used to determine the number of annuity units issued

Life Annuity

investors receive regular paymetns until death, regardess of the investor's sex or how long the investors live -payout method gives the investors the largest payment of all methods of payout

Mortality Risk Charge

a cahrge for the risk the issuer takes in guaranteeing paymentes to annuitants for life