Annuities Flashcards

You may prefer our related Brainscape-certified flashcards:
1
Q

Types of Annuities

A

Types: Immediate, Deferred
Periods:Fixed, Variable (Index)
Payout Methods: Fixed period
fixed amount
straight life (removed from estate)
period certain
Joint survivor Annuity
Joint life Annuity (stops at end of first life. No practical use)
Premium Payment Methods:
SPDA
FPDA
SPIA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Fixed Annuity

A
  1. premiums invested in general account
  2. insurer bears risk
  3. min guaranteed interest rate
  4. suitable conservative investor
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Variable Annuity

A
  1. Premiums invested in sub accounts
  2. insured bears investment risk
  3. no guaranteed return
  4. suitable for investors with slightly higher risk tolerance
  5. sold with prospectus
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Equity Index Annuity

A
  1. Return is based on changes in an Equity Index like S&P
  2. typically guaranteed floor and ability to earn more
  3. Participation rate determines what % of index return will be credited to account. 10% return/ 80% participation =8%
  4. Cap Rate - Max that can be earned
  5. Spread - % subtracted from return (up to 3%)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Questionable Annuity Reccomendations

A
  1. There are other ways to earn tax deferred growth (IRA and qualified retirement plans)
  2. Annuities in IRA no additional tax benefits

Twisting - misrepresentations to entice owner to lapse, forfeit, or surrender policy to buy another

Churning - policy values in one contract are used to purchase another with the same insurer for the purposes of earning a commission.

1035 - must prove client will be better off in new product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Annuity Disclosures

A
  1. fees
  2. cost of riders
  3. surrender charges (0-5 years)
  4. terms and conditions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Taxation of Annuities

A

Income earned - not taxable until distributed (natural person only otherwised taxed in yr received ORDINARY gain or loss)

Payments- earnings portion = ordinary income
                - return of principle = not taxable
                - once all principle is recovered entire amount 
                  is taxable (if not all recovered prior to death can claim loss on final tax return)
Investment/return (mo payment x12 x expected life) = excluded amount

After 1982- LIFO

Prior to 59 1/2 10% penalty

Qualified Assets - amount included in estate of first death= replacement cost of single life annuity on 2nds life

Can claim a loss if entered into annuity for profit - (variable annuity) not financial well being of another

How well did you know this?
1
Not at all
2
3
4
5
Perfectly