Ch 12- Life Insurance & Variable Annuities

variable annuity characteristic

In a variable annuity, the amount of the benefit payments made out of the annuity varies with the investment performance of the separate account. The separate account is mainly invested in equity securities, with no return guaranteed. The hope is that the equity securities will keep pace with inflation but the annuitant assumes the investment risk of the plan.

correct concerning variable annuities and mutual funds

[A] Upon the owner's death, shares not withdrawn from a withdrawal plan by a mutual fund shareholder become part of his estate. [B] Variable annuity holders cannot determine the amount of monthly payments they will receive. [C] Mutual funds and the separate accounts of non-tax qualified variable annuities are registered under the Investment Company Act of 1940.

considered securities

considered to be security and not a form of insurance but generally offered by insurance companies. sold with the delivery of a prospectus

Permanent Life insurance

lifetime insurance assuming premiums are paid in full as they come do. ex: whole life, universal life, variable life, & variable universal insurance Provides a death benefit & a cash surrender value(amt avail in cash upon termination) may take out loans against CSV

Which of the following would probably provide the greatest protection of purchasing power?

A Variable Annuity provides the greatest protection of purchasing power when compared to: Fixed Annuity, Series EE, and Face Amount Certificates since these investments will only return a fixed amount

Purpose of Life Insurance

Purpose is income replacement for the bene of the insurance policy related to the life of the insured person. pays premium to company w/ after tax dollars & are not tax deductible

An investor has a long-term investment objective. Of the following, which is the best reason that a variable annuity may meet the investor's objective?

Surrender charges" apply to variable annuities during a specified period after the plan is put into place. If the investor decides to withdraw funds, surrender charges will apply and the investor may lose a significant amount of the total investment. This is the best reason listed to follow the long-term objective.

TRUE concerning the separate account for a Variable Annuity?

The separate account of a variable annuity must be registered under the Investment Company Act of 1940. Also, all investment income and capital gains accumulate tax free in the separate account until the annuity (or pay-out) period.

variable annuity

contract that allows for the accumulation of capital on a tax deferred basis. Offers investors opportunities to generate higher rate of return by investing in securities in a separate account.

accumulation units

pay into the plan used to determine contract owners interest in the separate account earnings are tax deferred until pymts begin. owner can withdraw the cash surrender value.

Variable Annuity

pays a fluctuating dollar amount each period. Amount paid varies based on value of securities in the separate account of the insurance company issuing the contract. The policy holder bears investment risk.

Fixed Annuity

pays the same dollar amt each period. insurance company bears the investment risk.

annuity units

receiving payments from the plan determine the amount of each pymt to the annuitant

Annuity

series of fixed payments paid for life usually as retirement income. or can be paid to annuitant and bene for a certain time such as 10 yr. long term capital appreciation contracts are issued by life insurance companies. insurance company bears investment risk made up of a port of securities held in a tax deferred account of insurance company. provide possible hedge against inflation.

Term Insurance

temp insurance good for 1 yr, 5yr, 10yr provides death benfit only no cash values. Policyholders may not take out loans against the policy.

annuitization

when owner selects a payout option, accumulation units are exchanged for annuity units.