Unit 2.2 VARIABLE insurance products

for the 1035 exchange, the firm must ask if the customer if he had an exchange of a variable annuity at another broker-dealer within the last ? months.

36 months.

For annuities, withdrawals before the age of ? result in a ? penalty in addition to full time tax on anything over the cost basis taken out of the account.

59 1/2 and 10%

If an index does well, the annuitant is credited with a specific % of the growth of the index - typically ?% which is known as the ?

80-90%, known as the participation rate.

1035 applies to transfers of cash values from ?to?, ?to? and ?to?.

A2A, L2L, L2A.

1035 cannot be used for transfers from a ?to?

A2L

Read the example of the 1035 exchange police on the description:

I a life insurance policyholder wanted to exchange her policy with that of another company, she could transfer all cash values from the old policy into the new policy without recognizing any tax consequences.

What is a cap rate and what is typical?

If the index grew by a percentage, the cap rate is what percentage it can't pass.

Since it is made to keep up with inflation, who assumes the risk?

Investor

FINRA is concerned about 1035 exchange being abused where the reg rep emphasizes the tax-free nature of exchange w/o pointing out the disadvantages. Read the description.

Possible surrender charges on the old policy, new surrender charge period on the new policy, possible loss of a higher death benefit that exists on the old policy.

What risk is associated with fixed annuities?

Purchasing power risk. The fixed payment that the annuitant receives loses buying power over time due to inflation.

An index annuity credits interest in the owner's account using a formula based on the performance of a particular stock index, such as the ?&? ???

S&P 500

The premium payments for variable annuities are invested in the ? account of the insurer.

SEPERATE

For fixed annuities, who bears the investment risk?

The insurer guarantees it so it's their risk. This product is not a security. An insurance license is required to sell fixed annuities but a securities license is not.

Out of fixed annuities, life insurance, variable annuities, and variable life insurance, which ones are securities?

Variable life and variable annuities

What does the term annuity mean?

a stream of payments guaranteed for some specified period. The actual amount to be paid is not guaranteed.

What is an annuity?

an insurance contract designed to provide retirement income.

With fixed and variable annuities that insurance companies offer, what are similar in both?

annuitant makes after-tax lump sum or periodic payments to the insurance company, which invests the money in an account and grows it TAX DEFERED. At retirement the funds become available for withdrawal either as a lump sum or as a periodic payments to the annuitant.

Exceptions to the 10% penalty include

death and annuitization under rule 72(t).

Index annuities are a type of (fixed or variable) annuity? What license do you need to sell it?

fixed. Insurance

Index annuities are for investors seeking market participation but with a XXXX against loss.

guarantee

For fixed annuities, the the insurance company is obligated to pay a

guaranteed amount of payout (typically monthly) to the annuitant based on how much was poaid in.

Which type of annuity was created to overcome purchasing power risk without the market risk of a variable annuity?

index annuity

Variable annuities were offered to keep pace with ?

inflation

if the index does poorly, the annuitant may receive a guaranteed minimum ?

interest rate such as a 1% or 2%.

index annuities have a long surrender charge which is ? longer than other annuities.

longer

Fixed and Variable annuities are both non-?

non-qualified, meaning they are funded with after tax dollars, the money grows tax deferred, and only the earnings are taxed at distribution

annuities take away the fear of

outliving your income - which is the mortality guarantee - a guarantee tied to a life span

What do investors pay in a fixed annuity?

premiums to the insurance company and then they are invested in the company's general account.

Because the investor takes the risk, it must be sold with a ? and have both? and ? liscenses

prospectus, insurance and securities liscensed.

The separate account is comprised of various ? that behave like ? but we can't call them that

subaccounts, mutual funds

The IRS allows annuity and life insurance policyholders to exchange their policies without ? liablity

tax

1035 exchange is a ?-? exchange between like contracts

tax-free