Annuity - WebCE Questions With Correct Answers Already Passed!!

Annuitization is - Accumulated values are converted into a stream of periodic income payments. How often can payments of annuities be paid out? - A specified term of years, for life, or a combination of the two. What is the reason (how has a consumer's priorities and needs shifted) that annuities are well suited for late-life retirement planning? - When a consumer priorities and needs typically shift from asset accumulation to income distribution What is the start date range for deferred income annuities? - Anywhere from 13 months to 40 years in the future. What is the age that Deferred Income Annuities' income start date cannot extend past? - 85 years old. What are Surrender Charges? - Fees the insurer assess for early withdrawals or contract surrenders. What is a Withdrawal Fee? - when less than the full contract value is taken. What are the two approaches for insurers to determine the surrender charge? What are other ways? - 1) Account Value Method 2) Premium Deposit Method 3) Market Value Adjustments 4) Premium Tax What is the Premium Deposit Method of determining the surrender charge? - The charge on the amount of the contract's invested premium, applying a percentage that usually declines annually over the surrender charge period.What is the Account Value Method of determining the surrender charge? - Assess a surrender charge equal to some percentage of the contract's accumulated value. What is Premium Tax in relation to the annuity? - A number of states impose a tax on annuity premiums. What does the Mortality and Expense (M&E) charge? - Assessed against the values of the separate subaccounts and is deducted before accumulation unit values are calculated. It helps ensure that the insurer can meet its contractual obligations for annualized income payments and a minimum death benefit. The cost of a variable annuity's death benefit and annuity charge plus related insurer costs (such as agent commissions and overhead) Which expense of a Variable Annuity, which is the most criticized? And why? - The Mortality and Expense. What fees are built into the Fixed Annuity Contract's interest rate? - The Commissions it pays to its producers and distributors, its operational costs and reserve requirements, and generates profits. 1) Commissions 2) Operational costs 3) Profits What are the annuity drawbacks? - 1- Lack of Liquidity 2- Contract Surrender Charges 3- Tax Penalties for Early Withdrawals (Withdrawals taken before age 59½ may be subject to a 10 percent IRS penalty tax unless an exception applies.)4- Fees and Charges that may be Higher than those associated with other Investments (Annual fee to manage/administer it. Typically .3% of Value of Annuity or Flat Fee of $25/Year) 5- No Capital Gains Treatment of Distributed Funds (Taxed as Ordinary Income) 6- No Step-Up in Basis for Beneficiaries 7- Complex Design What are the Pro's for Annuities? - 1- Tax Deferral 2- Death Benefits 3- Flexible Funding 4- Variety of Annuitized Payout Options 5- No Limits on Contributions 6- Probate Avoidance 7-Lifetime Income Options through Annuitization 8- Income Options other than Annuitization 9- Contract Fee Waivers for "Crisis" Situations