WISCONSIN LIFE INSURANCE EXAM STUDY GUIDE
Cross Purchase Plans - Answers :Agreements that provide that upon a business
owner's death, surviving owners will purchase the deceased's interest, often with funds
from life insurance policies owned by each principal on the lives of all other principals.
Entity Plans - Answers :Agreements in which a business assumes the obligation of
purchasing a deceased owner's interest in the business, thereby proportionately
increasing the interests of surviving owners
Human Life Value Approach - Answers :An individuals economic worth, measured by
the sum of the individuals future earnings that is devoted to the individuals family.
403(b) Plan - Answers :A tax-deferred retirement plan for certain employees of public
schools, employees of specific tax-exempt organizations, and certain ministers. For
example: teachers, hospital workers, ministers, and some other public employees
1035 Contract Exchange - Answers :Applies to annuities. If an annuity is exchanged for
another annuity, a gain (for tax purposes) is not realized. This is also true for a life
insurance policy or an endowment contract exchanged for an annuity. However, an
annuity cannot be exchanged for a life insurance policy. This provision in the tax code
allows you, as a policyholder, to transfer funds from a life insurance, endowment or
annuity to a new policy, without having to pay taxes
Accumulation Period - Answers :The time over which the annuitant makes payments or
investments in an annuity, and when those payments earn interest tax deferred.
Accumulation Units - Answers :A variable annuity contract owner's interest in the
separate account prior to annuitization.
Annuitant - Answers :The person that buys an annuity; may or may not be an annuity's
policyowner. The annuitant's life expectancy determines the annuity payments.
Annuity Units - Answers :At the time the variable annuity benefits are to be paid out to
the annuitant, the accumulation units in the participant's individual account are
converted into annuity units.
Cash Refund Option - Answers :Provides that, upon the death of an annuitant before
payments totaling the purchase price have been made, the excess of the amount paid
by the purchaser over the total annuity payments received will be paid in one sum to
designated beneficiaries.
Deferred Annuity - Answers :An annuity in which the rents begin after a specified
number of periods. May be purchased on either a single premium or flexible premium
basis. Typically do not begin making payments for at least 1 year after the date of
purchase.
,Equity Indexed Annuity - Answers :A fixed, deferred annuity that allows the owner to
participate in the growth of the stock market and provides downside protection against
the loss of principal and prior interest earnings if the annuity is held to term.
Exclusion Ratio - Answers :Fraction used to determine amount of annual annuity
income exempt from federal income tax. Exclusion ratio is the total contribution or
investment in the annuity divided by the expected ratio.
Fixed Annuity - Answers :An annuity that offers fixed payments and guarantees a
minimum rate of interest to be credited to the purchase payment or payments.
Immediate Annuity - Answers :Provides for payment of annuity benefit at one payment
interval from date of purchase. Can only be purchased with a single payment.
Joint and Survivor Option - Answers :A settlement option which guarantees that benefits
will be payed on a life-long basis to two or more people. This option may include a
period certain and the amount payable is based on the ages of the beneficiaries. When
the surviving annuitant dies, no further payments are made to anyone. A full survivor
option pays the same benefit amount to the survivor. A two-thirds option pays two-thirds
of the original joint benefit. A one-half survivor option pays one-half of the original joint
benefit.
Life with Period Certain Annuity (Life Income with Term-Certain Option) - Answers
:Designed to pay the annuitant an income for life, but guarantees a definite minimum
period of payments. The life with period certain option provides income to the annuitant
for life but guarantees a minimum period of payments. Thus, if the annuitant dies during
the specified period, benefit payments continue to the beneficiary for the remainder of
that period.
Market Value Adjusment - Answers :A market value adjustment can be attached to a
deferred annuity that features fixed interest rate guarantees combined with an interest
rate adjustment factor that can cause the actual crediting rates to increase or decrease
in response to market conditions. Instead of having the annuity's interest rate linked to
an index with as with the equity-indexed annuity, and MVA annuity's interest rate is
guaranteed fixed if the contract is held for the period specified in the policy. The MVA
feature applies only if the contract is surrendered before the contract period expires.
Otherwise, the annuity functions the same way a fixed annuity does.
Period Certain Annuity - Answers :Annuity that guarantees payments to an ANNUITANT
for a particular period of time. For example, a 10-year period-certain annuity will
guarantee annuity payments for at least 10 years. If the annuitant dies before the 10
years have expired, the payments will continue to the beneficiaries for the remaining
term.
,Periodic Payment Annuity (Flexible Premium) - Answers :Describes an annuity owner
making multiple premium payments to accumulate principal. Typically, after the initial
premium, these payments are flexible with frequency and amount.
Principal - Answers :The original sum of money paid into an annuity through premiums.
Single Premium Annuity - Answers :An annuity for which the entire premium is paid in
one sum at the beginning of the contract period. This can be deferred or immediate.
Straight Life Annuity - Answers :An annuity income option that pays a guaranteed
income for the annuitant's lifetime, after which time payments stop.
Variable Annuity - Answers :Pays a lifetime income, but the income payments vary
depending on common stock prices. Shifts the investment risk from the insurer to the
contract owner. These annuities invest deferred payments in an insurer's separate
accounts instead of an insurer's general accounts. Because these annuities are based
on non-guaranteed equity investments (such as common stocks) a sales rep must be
registered with the Financial Industry Regulatory Authority (FINRA) as well as hold a
state insurance license.
Which annuity payout option provides for the greatest monthly payment? - Answers
:Straight life
Which annuity payout option makes no additional payments regardless of when the
annuitant dies? - Answers :Life only
Annuity Certain - Answers :An annuity that provides a specified, guaranteed monthly
income for a stated number of years without consideration of any life contingency.
Fixed Immediate Annuity - Answers :The amount of this payment is dependent upon
starting principal, interest, and the contract's income period.
Annuitization Phase - Answers :Phase in which investor can start taking payments from
the variable annuity. Accumulation units are converted into a fixed number of annuity
units (determines the amount the annuitant will receive each month).
An annuity is primarily used to provide... - Answers :Retirement income
Under a non-qualified annuity, interest is taxed after the... - Answers :Exclusion ratio
has been calculated.
401(k) Plans - Answers :A retirement savings plan sponsored by an employer. It lets
workers save and invest a piece of their paycheck before taxes are taken out. Taxes are
not paid until the money is withdrawn from the account.
, Defined Benefit Plan - Answers :A pension plan under which benefits are determined by
a specific benefit formula.
Defined Contribution Plan - Answers :A tax qualified retirement plan in which annual
contributions are determined by a formula set forth in the plan. Benefits paid to a
participant vary with the amount of contributions made on the participants behalf and
the length of service under the plan.
Employee Retirement Income Security Act of 1974 (ERISA) - Answers :Federal law that
sets minimum standards for most voluntarily established pension and health plans in
private industry to provide protection for individuals in these plans.
Keogh Plans (HR-10) - Answers :Designed to fund the retirement of self-employed
individuals. Name is derived from an author, under which contribution to such plans are
given favorable tax treatment.
Nonqualified Withdrawal - Answers :If a withdrawal is taken without meeting the above
criteria and the amount of the withdrawal exceeds the total amount contributed, it is a
nonqualified withdrawal. The earnings from the contributions become taxable.
Profit Sharing Plans - Answers :Plans that distribute a portion of an organization's profits
to its employees who qualify under the plan.
Qualified Plan - Answers :A retirement or employee compensation plan established and
maintained by an employer that meets specific guidelines spelled out by the IRS and
consequently receives favorable tax treatment.
Qualified Withdrawals - Answers :Provide the tax-free distribution of earnings. To be a
qualified withdrawal, the funds must have been held in the account for a minimum of
five years; and if the withdrawal occurs for one of the following reasons, no portion of
the withdrawal is subject to tax
- owner has reached age 59 1/2
- owner dies or becomes disabled
- distribution is used to purchase a first home
Rollovers - Answers :An individual retirement account established with funds transferred
from another IRA or qualified retirement plan that the owner had terminated.
Roth IRA - Answers :An individual retirement account allowing a person to set aside
after-tax income up to a specified amount each year. Both earnings on the account and
withdrawals after age 59½ are tax-free.
How are contributions made to a Roth IRA handled for tax purposes? - Answers :Not
tax deductible.
Cross Purchase Plans - Answers :Agreements that provide that upon a business
owner's death, surviving owners will purchase the deceased's interest, often with funds
from life insurance policies owned by each principal on the lives of all other principals.
Entity Plans - Answers :Agreements in which a business assumes the obligation of
purchasing a deceased owner's interest in the business, thereby proportionately
increasing the interests of surviving owners
Human Life Value Approach - Answers :An individuals economic worth, measured by
the sum of the individuals future earnings that is devoted to the individuals family.
403(b) Plan - Answers :A tax-deferred retirement plan for certain employees of public
schools, employees of specific tax-exempt organizations, and certain ministers. For
example: teachers, hospital workers, ministers, and some other public employees
1035 Contract Exchange - Answers :Applies to annuities. If an annuity is exchanged for
another annuity, a gain (for tax purposes) is not realized. This is also true for a life
insurance policy or an endowment contract exchanged for an annuity. However, an
annuity cannot be exchanged for a life insurance policy. This provision in the tax code
allows you, as a policyholder, to transfer funds from a life insurance, endowment or
annuity to a new policy, without having to pay taxes
Accumulation Period - Answers :The time over which the annuitant makes payments or
investments in an annuity, and when those payments earn interest tax deferred.
Accumulation Units - Answers :A variable annuity contract owner's interest in the
separate account prior to annuitization.
Annuitant - Answers :The person that buys an annuity; may or may not be an annuity's
policyowner. The annuitant's life expectancy determines the annuity payments.
Annuity Units - Answers :At the time the variable annuity benefits are to be paid out to
the annuitant, the accumulation units in the participant's individual account are
converted into annuity units.
Cash Refund Option - Answers :Provides that, upon the death of an annuitant before
payments totaling the purchase price have been made, the excess of the amount paid
by the purchaser over the total annuity payments received will be paid in one sum to
designated beneficiaries.
Deferred Annuity - Answers :An annuity in which the rents begin after a specified
number of periods. May be purchased on either a single premium or flexible premium
basis. Typically do not begin making payments for at least 1 year after the date of
purchase.
,Equity Indexed Annuity - Answers :A fixed, deferred annuity that allows the owner to
participate in the growth of the stock market and provides downside protection against
the loss of principal and prior interest earnings if the annuity is held to term.
Exclusion Ratio - Answers :Fraction used to determine amount of annual annuity
income exempt from federal income tax. Exclusion ratio is the total contribution or
investment in the annuity divided by the expected ratio.
Fixed Annuity - Answers :An annuity that offers fixed payments and guarantees a
minimum rate of interest to be credited to the purchase payment or payments.
Immediate Annuity - Answers :Provides for payment of annuity benefit at one payment
interval from date of purchase. Can only be purchased with a single payment.
Joint and Survivor Option - Answers :A settlement option which guarantees that benefits
will be payed on a life-long basis to two or more people. This option may include a
period certain and the amount payable is based on the ages of the beneficiaries. When
the surviving annuitant dies, no further payments are made to anyone. A full survivor
option pays the same benefit amount to the survivor. A two-thirds option pays two-thirds
of the original joint benefit. A one-half survivor option pays one-half of the original joint
benefit.
Life with Period Certain Annuity (Life Income with Term-Certain Option) - Answers
:Designed to pay the annuitant an income for life, but guarantees a definite minimum
period of payments. The life with period certain option provides income to the annuitant
for life but guarantees a minimum period of payments. Thus, if the annuitant dies during
the specified period, benefit payments continue to the beneficiary for the remainder of
that period.
Market Value Adjusment - Answers :A market value adjustment can be attached to a
deferred annuity that features fixed interest rate guarantees combined with an interest
rate adjustment factor that can cause the actual crediting rates to increase or decrease
in response to market conditions. Instead of having the annuity's interest rate linked to
an index with as with the equity-indexed annuity, and MVA annuity's interest rate is
guaranteed fixed if the contract is held for the period specified in the policy. The MVA
feature applies only if the contract is surrendered before the contract period expires.
Otherwise, the annuity functions the same way a fixed annuity does.
Period Certain Annuity - Answers :Annuity that guarantees payments to an ANNUITANT
for a particular period of time. For example, a 10-year period-certain annuity will
guarantee annuity payments for at least 10 years. If the annuitant dies before the 10
years have expired, the payments will continue to the beneficiaries for the remaining
term.
,Periodic Payment Annuity (Flexible Premium) - Answers :Describes an annuity owner
making multiple premium payments to accumulate principal. Typically, after the initial
premium, these payments are flexible with frequency and amount.
Principal - Answers :The original sum of money paid into an annuity through premiums.
Single Premium Annuity - Answers :An annuity for which the entire premium is paid in
one sum at the beginning of the contract period. This can be deferred or immediate.
Straight Life Annuity - Answers :An annuity income option that pays a guaranteed
income for the annuitant's lifetime, after which time payments stop.
Variable Annuity - Answers :Pays a lifetime income, but the income payments vary
depending on common stock prices. Shifts the investment risk from the insurer to the
contract owner. These annuities invest deferred payments in an insurer's separate
accounts instead of an insurer's general accounts. Because these annuities are based
on non-guaranteed equity investments (such as common stocks) a sales rep must be
registered with the Financial Industry Regulatory Authority (FINRA) as well as hold a
state insurance license.
Which annuity payout option provides for the greatest monthly payment? - Answers
:Straight life
Which annuity payout option makes no additional payments regardless of when the
annuitant dies? - Answers :Life only
Annuity Certain - Answers :An annuity that provides a specified, guaranteed monthly
income for a stated number of years without consideration of any life contingency.
Fixed Immediate Annuity - Answers :The amount of this payment is dependent upon
starting principal, interest, and the contract's income period.
Annuitization Phase - Answers :Phase in which investor can start taking payments from
the variable annuity. Accumulation units are converted into a fixed number of annuity
units (determines the amount the annuitant will receive each month).
An annuity is primarily used to provide... - Answers :Retirement income
Under a non-qualified annuity, interest is taxed after the... - Answers :Exclusion ratio
has been calculated.
401(k) Plans - Answers :A retirement savings plan sponsored by an employer. It lets
workers save and invest a piece of their paycheck before taxes are taken out. Taxes are
not paid until the money is withdrawn from the account.
, Defined Benefit Plan - Answers :A pension plan under which benefits are determined by
a specific benefit formula.
Defined Contribution Plan - Answers :A tax qualified retirement plan in which annual
contributions are determined by a formula set forth in the plan. Benefits paid to a
participant vary with the amount of contributions made on the participants behalf and
the length of service under the plan.
Employee Retirement Income Security Act of 1974 (ERISA) - Answers :Federal law that
sets minimum standards for most voluntarily established pension and health plans in
private industry to provide protection for individuals in these plans.
Keogh Plans (HR-10) - Answers :Designed to fund the retirement of self-employed
individuals. Name is derived from an author, under which contribution to such plans are
given favorable tax treatment.
Nonqualified Withdrawal - Answers :If a withdrawal is taken without meeting the above
criteria and the amount of the withdrawal exceeds the total amount contributed, it is a
nonqualified withdrawal. The earnings from the contributions become taxable.
Profit Sharing Plans - Answers :Plans that distribute a portion of an organization's profits
to its employees who qualify under the plan.
Qualified Plan - Answers :A retirement or employee compensation plan established and
maintained by an employer that meets specific guidelines spelled out by the IRS and
consequently receives favorable tax treatment.
Qualified Withdrawals - Answers :Provide the tax-free distribution of earnings. To be a
qualified withdrawal, the funds must have been held in the account for a minimum of
five years; and if the withdrawal occurs for one of the following reasons, no portion of
the withdrawal is subject to tax
- owner has reached age 59 1/2
- owner dies or becomes disabled
- distribution is used to purchase a first home
Rollovers - Answers :An individual retirement account established with funds transferred
from another IRA or qualified retirement plan that the owner had terminated.
Roth IRA - Answers :An individual retirement account allowing a person to set aside
after-tax income up to a specified amount each year. Both earnings on the account and
withdrawals after age 59½ are tax-free.
How are contributions made to a Roth IRA handled for tax purposes? - Answers :Not
tax deductible.
