Unit 24: Insurance Based Products Flashcards
(21 cards)
Annuity tax deferred earnings
earnings are tax deferred and do not have income limits like IRA and qualified plans
annuity test purposes
every annuity is non-qualified unless stated otherwise
variable annuities
-value fluctuates based on separate account
-can lose principal, rep must be securities licensed
-can keep up with inflation better than fixed annuity
fixed annuity
-guaranteed rate of return
-is not considered a security
-rep does not need to be securities licenses
VA advantages over Mutual Funds
-tax deferred earnings
-death benefit
-lifetime income
-1035 exchanges
-no RMD
-no contribution limits
-re allocate without incurring taxes
-no probate
VA disadvantages to Mutual Funds
-when taxed, its at ordinary income rather than capital gains
-fees can be higher
-early w/d fees prior to 59.5
-CDSC
indexed annuity
-principal protection but ability for market appreciation
-offers some protection against the purchasing power risk of fixed annuities
-not considered a security
-has participation rates, caps, and minimum guarantees
-calc can be annual reset, high-watermark, point-to-point, or average.
period certain
annuitant will get paid out for life, but a certain number of payments will be guaranteed, meaning the annuitants estate/beneficiary will get paid if annuitant dies before the period.
annuity units
similar to mutual fund shares; show the increase in CV
annuity taxation
when one time distributions are made, taxed as LIFO
annuitizing taxation
when annuitized, the monthly payments are treated as a ratio of contributions and earnings
-never a 10% penalty, even if annuitizing before 59.5
Whole Life insurance
-cash value
-loans
-dividends
Universal Life
-has same components as WL, but interest rate fluctuates and DB is 1-yr renewable terms
-DB has minimum guarantee, but can increase with continued premiums
Variable Life
-Like WL, but excess funds can become invested in the market via separate account (includes voting rights per $100 invested).
Variable Life fees
-deducted from premium: admin fee, sales load, state taxes
-deducted from separate account: mortality fee, expense risk fee, investment fees
Variable Life calculations
-DB calc annually, CV calc monthly, SA calc daily
Variable Life policy loans
-at least 75% of CV and in force 3 years
-full cash value only obtained by surrendering
-DB/CV reduced by loan
Variable Life exchange
-must be in force 24 months
-no underwriting
-new policy issued retroactively
Variable Life max fee
-9% over 20 years
-50% can be loaded first year, but must average 9% over first twenty years.
mortality risk
is the danger of an annuitant outliving average life expectancy.
annuity face value equals
the death benefit
