Flashcards in Chapter 15 Annuity and Direct Participation Deck (15)
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1
Fixed versus Variable
Payout ___
Considered a security?
What type of account ? General or Separate
Who regulates
requires prospectus?
Fixed Annuity: Variable Annuity:
Guaranteed payout Variable payout
Not considered a security Considered a security
General Account Separate Account
Regulated by states Regulated by SEC/FINRA
No prospectus required Prospectus required
2
Annuity contract sub accounts are valued in units, not share
Accumulation units X NAV = Contract Value
s
3
1035 Exchange
Provision in the tax code which permits the direct transfer of one annuity contract for another without creating a taxable event
No check issued to client
Charges from insurance company may be levied
Justifications:
Circumstances or investment goals change
Dissatisfied with insurance company
Red Flag Alert:
Frequent 1035 Exchanges may be an indication of churning
4
DPPs –Introduction
Direct Participation Program
Definition:
A business venture designed to pass through both income and losses to investors
Examples: Limited Partnerships, General Partnerships, Subchapter S Corporations, and Joint Ventures
Those considering DPPs as a potential investment should:
Have liquidity in other investments
Have a need for both present and future tax benefits
Be aware of the risks involved
Be able to tie up funds for a long period of time
5
Subscription Agreement
Suitability determination is accomplished via this document and will state the following:
Purchaser has read the prospectus (or offering memorandum) and understands the risks
Purchaser has met the net worth, income and suitability requirements
To whom the check is made payable
Limited Partners are not accepted until the General Partner signs
6
1. In a fixed annuity what happens
- insurance co assumes investment risk
- ins co makes the investment
- ins co guarantees a min annual return
- ins co invests owners net payments in a general account
NOT invest the contract owners net payments in a separate account
7
15-2 old lady should purchase a what type of annuity to protect against inflation
variable annuity
8
15-3 Fluctuations in the value of a variable annuity will correspond with the fluctuation in the
Value of the securities held in the separate account of the annuity
9
15-4 Advantages of variable annuity against fixed are
- protection over inflation
- Ability to vote regarding changes in investment policy and elect invest managers
10
15-5 Value of annuity owner's account during the accumulation period is
I the amount of money that the contract owner pays into annuity
II performance of the portfolios that make up the subaccounts
NOT
performance of ins cos stock in market
not AIR (annuity's assumed IR)
11
For a variable annuity, Assumed Interest Rate (AIR) is:
c. A bench mark rate of return that an insurance company uses to determine the annuitant's payout
12
15-7 A grandpa wants to buy an annuity for son 45 and grandson 15 what is best
b. joint and last survivor annuity
in this option benefit payments are made to both people in joint account then to the survivor, as long as the survivor lives
13
A loss from a limited partnership is passed through to a limited partner.
on the limited partner's tax return this loss is
b. is considered a passive loss and may only be deducted against passive income
14
Sources of risk in a limited partnership are all EXCEPT
a. possible loss of capital
b. management ability of general partner
c. change in tax laws and gov reg
d. unlimited liab
d. unlimited liab
15
