Chapter 7 Annuities Fixed and Variable

Question 1

Life insurance based on building a ________

Annuity based on liquidating a _______

Answer 1

Estate

Question 2

Accumulation Phase

Answer 2

before payout period begins

Question 3

Payout Period

Answer 3

after accumulation phase

quarterly, semi annual, or annual payment schedules

Question 4

2 types of annuity payments (depending on contract)

Answer 4

1. Immediate

2. Deferred

Question 5

Immediate Annuity

Answer 5

Payment of annuity benefit at one payment interval from date of purchase

Question 6

Deferred Annuity

Answer 6

postponement of commencement of annuity until after a specified period or until reaching a certain age.

Question 7

Fixed Annuity

Answer 7

guaranteed fixed benefit amount payable for life.

guaranteed rate of return

Question 8

Variable Annuity

Answer 8

No guarantee of $ amount of payments due to fluctuations of common stock

no guaranteed rate of return

Question 9

Straight Life Income Annuity

Answer 9

guarantees income for lifetime

Question 10

Cash Refund Option

Answer 10

guaranteed income for lifetime, or if dies before funds are depleted beneficiary receives a lump sum payment.

Question 11

Installment Refund Option

Answer 11

guaranteed income for lifetime, if dies, pays beneficiary in periodic installments

Question 12

Life with Period Certain Option

Answer 12

guaranteed income for lifetime, if dies before period expires, policy pays beneficiary installments until period ends

Question 13

Period Certain Option

Answer 13

Guarantees only for a certain time, if dies before period ends, pays beneficiary through end of period.

Question 14

Joint and Full Survivor Option

Answer 14

payments split among 2 annuitants. if 1 dies, other gets rest of principal, when they die no more payments are made.

Question 15

Joint and 2/3 option

Answer 15

survivors income reduced to 2/3 of original joint income

Question 16

Joint and 1/2 option

Answer 16

survivors income reduced to 1/2 of original income

Question 17

Equity Indexed Annuities

Answer 17

form of fixed rate annuity.

credits interest to annuities value

uses formula based on changes to index, determines how interest (if any) is calculated and credited.

Question 18

2 Features of Equity Indexed Annuities

Answer 18

The Indexing Method- approach used to determine amount of change in the index

The Participation Rate- decides how much of the increase with be used to calculate index linked interest

Question 19

Annuity Payout Options

Answer 19

can be for specified term of years, for life, or combination of the 2

Question 20

Exclusion Ratio

Answer 20

fraction used to determine amount of annual income exempt from federal income tax

total contribution divided by expected ratio

Question 21

Single Premium Annuity

Answer 21

Purchased with entire premium paid in one sum at time of purchase

Question 22

Structured Settlements

Answer 22

used to distribute funds from lawsuits or lottery winnings.

Question 23

Tax Sheltered Annuity

Answer 23

Non-profit organizations and employees

funds contributed are excluded from current taxable income and only taxed when benefits are paid.