Series 66 - Unit 15
A variable life insurance plan may charge a maximum sales charge of
9% over a period not to exceed 20 years.
John owns a nonqualified, tax-deferred annuity. When he retires, what will be the tax consequences of his annuity payments?
His annuity payments are partly taxable and partly tax-free return of capital.
randow withdrawals from an annuity use
L:IFO
there are no
age restrictions with annuities
EIAs (equity indexed annuities) almost always come with a
cap rate, a ceiling beyond which earnings cannot be credited to the investor's account.
EIA offers a
guaranteed floor (minimum return)
The owner of a fixed annuity is protected against
longevity risk.
the equity index annuity is
not considered a security.
variable annuity
offers an investor the opportunity to have tax-deferred participation in the equity markets
64-year-old woman wishes to withdraw funds from her nonqualified single premium deferred variable annuity purchased a number of years ago. The withdrawal would be
taxed as ordinary income Yes, I know that only the portion of the withdrawal that exceeds the cost basis is subject to tax, but what else are you going to pick here? Sometimes you have to go with the best choice, even if it isn't the most accurate.
sump sum withdrawals
use LIFO
An investor purchases a single premium deferred index annuity with a 6% bonus feature. The premium was $100,000. The annuity has an 80% participation rate with a 10% cap. If the underlying index increased by 15%, the account's value at the end of the year would be closest to
$116,600. The 6% bonus means that the client's initial payment is increased by 6%. That means the account shows a starting balance of $106,000. Although the index increased by 15% and the participation rate of 80% would be a 12% growth rate, the cap of 10% comes into play. That makes the calculation: $106,000 x 110% or $116,600.
bonus ann
- not uncommon for index annuities (and variable) to offer a bonus on top of the investor's intial contribution - if investing 60k with a 5% bonus would result in an initial 63K balance
Withdrawals from nonqualified annuities (all annuities on the exam are nonqualified unless otherwise specified) are taxed on a
LIFO basis. That is, the last money in (the earnings) is considered the first money withdrawn
maximize monthly payments to be received
Straight life When one annuitizes, the amount of the annuity payment is highest when the annuitant takes the most risk (and the insurance company the least). Straight life payments end upon the death of the individual, and if that should be the following month, the insurance company keeps the rest of the money.
the participation rate
The percentage of the index's return the insurance company credits to the annuity is determined by the participation rate
It is not uncommon to find index annuities offering
a bonus added to the premium
annuity unit
a measure of value used only during an annuitized contract's payout period
AIR
basis of determining distribution from a variable annuity
Both Variable and EIA are issued
by life insurance companies
The face value in an insurance policy is the
death benefit.
Universal life
does not invest in the market through a separate account universal variable does
there may be a surrender charge in the case of
early surrender of a variable annuity, taking out the cash value of a variable life policy, or redemption of Class B (back-end load) mutual fund shares
universal life has
flexible premiums
In a variable life policy, the face value will
fluctuate with the separate account's performance, but it will never decrease below the original minimum face value.
In general, variable annuity expenses are
higher than those of a mutual fund with similar objectives
high-water mark
highest value reached by the index between anniversary dates of the annuity is compared to the value at the beginning of the year - can provide highest gains
Incurring the surrender fee for the 1035 exchange of one contract and initiating a new long-term contract is
inappropriate for a customer, in general, and particularly for this customer, considering her need to access her funds only two years later.
As long as the policy has cash value,
loans are permitted
An index annuity does not participate in
losses of the index, only gains. With no gain, and no guaranteed annual minimum, the account value remains at the same
annual reset has a
lower participation rate than point to point
Using the annual high-water mark with look back will generally result in
the highest return during periods of high volatility
point-to-point
the interest is computed based on the value of the index at the end of the contract compared to the beginning - a variation is annual point-to-point
annual-reset
the interest to be creditied to the acccount is computed bu comparing the index value at the end of the year to the value at the beginning of the year - has a lower participation rate then point to point
averaging
the most common is a monthly average and this can be the best options when markets are expected to highly volatile
theoretically, no limit as to how much one could earn with a
variable annuity.
