SEGREGATED FUNDS AND ANNUITIES (SFA) EXAM QUESTIONS WITH CORRECT ANSWERS
|LATEST UPDATE 100% SOLVED| GRADED A+
What day Lenny do?
LLQP - SFA VL 30 So, Lenny decided to add a 10 year guarantee period.
This would be a "Life Annuity with a 10 year Guarantee Period"
- The life annuity would pay for the rest of Lenny's life, or 10 years, whichever is longer.
- If Lenny dies one year into the contract, payments will continue for another 9 years,
- If Lenny lives to be 105, payments will continue to age 105.
By adding a guarantee, the price of the annuity will go up
Lenny was initially quoted a $1,000,000 premium for a Life Annuity (with no guarantees) and it
would pay him $60,000 a year for the rest of his life.
WHat will happen to the cost of the annuity?
LLQP - SFA VL 30 - The premium will increase to more than $1,000,000 or
- For the same $1,00,000 premium, the annuity payment would be less, $55,000 per year (for
example) instead of $60,000
Assume the income payments goes down to $55,000,
Laverne is not comfortable with the risk of a straight life annuity (no guarantee).
,Now that she knows the income would drop if the guarantee is added, perhaps she will now
think that the extra $5,000 per year means more time quality time together while Lenny is still
alive.
Lenny and Laverne must weigh the Pros and Cons of adding a guarantee.
What are 3 of Guarantees for Life Annuities
LLQP - SFA VL 30 - Life Annuity, Guarantee Period
- Life Annuity, Installment Refund
- Life Annuity, Cash Refund
What are the two types of Guarantees of Life Annuities that are called Capital Protection
Guarantees?
LLQP - SFA VL 30 - Life Annuity, Installment Refund
- Life Annuity, Cash Refund
Recall that Laverne was concerned with the risk of losing capital
Capital Protection Guarantee
LLQP - SFA VL 30 A Capital Protection Guarantee is to protect against the worst case
scenario which is ther person dying very soon.
So, Life Annuity, Installment Refund and LIfe Annuity, Cash Refund do not pay the interest.
Think of Guarantee as a warranty on a brand new car. If you add an extended warranty for 5
years, that is the worst you gonna do but you hope that car will last more than 5 years
,What is :
- Life Annuity, Installment Refund
- Life Annuity, Cash Refund
LLQP - SFA VL 30 Assume Lenny paid a $1,000,000 premium and died after receiving just
$200,000 in benefits (income payments).
Life Annuity, Installment Refund :
With a Life Annuity, Installment Refund, his beneficiaries would continue for receiving income
payments (installments) until a further $800,000 has been paid out.
The total $1,000,000 would have been paid out by the end of the annuity.
Life Annuity, Cash Refund:
With a Life Annuity, Cash Refund, his beneficiaries would receive that $800,000 as a lump sum
upom his death. The total $1,000,000 would have been paid out by the end of the annuity.
That is why these are called Capital Protection Guarantees.
Pricing of Life Annuities
LLQP - SFA VL 30 1. All else being equal, women pay more for life annuities as compared to
men. It is because women generally live longer than men and therefore the insurance company
knows they are likely have to pay an income or a longer period of time.
2. You should have a general idea of what type of annuity would cost the most. Whatever
annuity you would prefer will cost more. For example, front row tickets to a Rolling Stones
concert would obviously cost more than tickets high up in the stands
, 3. It's not about selling the client the best annuity, it's about selling them the best annuity for
their needs.
For example, a Porsche is better car than a Honda but that doesn't mean everybody should buy
a Porsche.
Twin brothers both buy a life annuity that will pay an annual income of $50,000.
Jack:
- 20 years old
- No health issues
- Expected to lvie 68 more years (to age 88)
Dan:
- 20 years old
- Diagnosed with a terminal illness
- Expected to live another 3 to 5 years
Who will have to pay the most for the Life Annuity?
LLQP - SFA VL 31 In case of Jack, the insurance company will likely have to pay $50,000 per
year for 68 years.
In case of Dan, the insurance company will likely have to pay $50,000 per year for 3 to 5 years.
Therefore Dan should pay a lower premium because his life expectancy is significantly shorter.
In other words, his life expectancy is impaired.
What is impaired life annuity?
|LATEST UPDATE 100% SOLVED| GRADED A+
What day Lenny do?
LLQP - SFA VL 30 So, Lenny decided to add a 10 year guarantee period.
This would be a "Life Annuity with a 10 year Guarantee Period"
- The life annuity would pay for the rest of Lenny's life, or 10 years, whichever is longer.
- If Lenny dies one year into the contract, payments will continue for another 9 years,
- If Lenny lives to be 105, payments will continue to age 105.
By adding a guarantee, the price of the annuity will go up
Lenny was initially quoted a $1,000,000 premium for a Life Annuity (with no guarantees) and it
would pay him $60,000 a year for the rest of his life.
WHat will happen to the cost of the annuity?
LLQP - SFA VL 30 - The premium will increase to more than $1,000,000 or
- For the same $1,00,000 premium, the annuity payment would be less, $55,000 per year (for
example) instead of $60,000
Assume the income payments goes down to $55,000,
Laverne is not comfortable with the risk of a straight life annuity (no guarantee).
,Now that she knows the income would drop if the guarantee is added, perhaps she will now
think that the extra $5,000 per year means more time quality time together while Lenny is still
alive.
Lenny and Laverne must weigh the Pros and Cons of adding a guarantee.
What are 3 of Guarantees for Life Annuities
LLQP - SFA VL 30 - Life Annuity, Guarantee Period
- Life Annuity, Installment Refund
- Life Annuity, Cash Refund
What are the two types of Guarantees of Life Annuities that are called Capital Protection
Guarantees?
LLQP - SFA VL 30 - Life Annuity, Installment Refund
- Life Annuity, Cash Refund
Recall that Laverne was concerned with the risk of losing capital
Capital Protection Guarantee
LLQP - SFA VL 30 A Capital Protection Guarantee is to protect against the worst case
scenario which is ther person dying very soon.
So, Life Annuity, Installment Refund and LIfe Annuity, Cash Refund do not pay the interest.
Think of Guarantee as a warranty on a brand new car. If you add an extended warranty for 5
years, that is the worst you gonna do but you hope that car will last more than 5 years
,What is :
- Life Annuity, Installment Refund
- Life Annuity, Cash Refund
LLQP - SFA VL 30 Assume Lenny paid a $1,000,000 premium and died after receiving just
$200,000 in benefits (income payments).
Life Annuity, Installment Refund :
With a Life Annuity, Installment Refund, his beneficiaries would continue for receiving income
payments (installments) until a further $800,000 has been paid out.
The total $1,000,000 would have been paid out by the end of the annuity.
Life Annuity, Cash Refund:
With a Life Annuity, Cash Refund, his beneficiaries would receive that $800,000 as a lump sum
upom his death. The total $1,000,000 would have been paid out by the end of the annuity.
That is why these are called Capital Protection Guarantees.
Pricing of Life Annuities
LLQP - SFA VL 30 1. All else being equal, women pay more for life annuities as compared to
men. It is because women generally live longer than men and therefore the insurance company
knows they are likely have to pay an income or a longer period of time.
2. You should have a general idea of what type of annuity would cost the most. Whatever
annuity you would prefer will cost more. For example, front row tickets to a Rolling Stones
concert would obviously cost more than tickets high up in the stands
, 3. It's not about selling the client the best annuity, it's about selling them the best annuity for
their needs.
For example, a Porsche is better car than a Honda but that doesn't mean everybody should buy
a Porsche.
Twin brothers both buy a life annuity that will pay an annual income of $50,000.
Jack:
- 20 years old
- No health issues
- Expected to lvie 68 more years (to age 88)
Dan:
- 20 years old
- Diagnosed with a terminal illness
- Expected to live another 3 to 5 years
Who will have to pay the most for the Life Annuity?
LLQP - SFA VL 31 In case of Jack, the insurance company will likely have to pay $50,000 per
year for 68 years.
In case of Dan, the insurance company will likely have to pay $50,000 per year for 3 to 5 years.
Therefore Dan should pay a lower premium because his life expectancy is significantly shorter.
In other words, his life expectancy is impaired.
What is impaired life annuity?
