Segregated Funds & Annuities - Chapter 3 Questions and Answers 100% Pass

Segregated Funds & Annuities - Chapter 3 Questions and Answers 100% Pass Which type of annuity is most appropriate for a young investor with ample income and is primarily interested in investment growth? An accumulation annuity. (Reference: Chapter 3) Tony wishes to purchase an annuity, but is concerned interest rates will rise significantly. What can Tony do to protect himself against this risk? Buy a series of annuities over time. (Reference: Chapter 3) What type of annuity should Brenda purhase with non-registered funds to provide her with a predicable and consistent taxable income? A prescribed annuity. (Reference: Chapter 3) What is an annuity contract? Provides periodic payments to be received by an annuitant in consideration of a lump sum or a series of sums deposited to the contract. (Reference: Chapter 3) Who is a co-annuitant? Each of the two annuitants in a joint-life annuity. (Reference: Chapter 3) What is an impaired annuity? An annuity based on the life of an annuitant with a shortened life expectancy. Also known as an enhanced annuity or age-related annuity. (Reference: Chapter 3) What is a joint and last survivor annuity? An annuity which, after the death of the annuitant, continues to be paid in whole or in part to the co-annuitant named in the contract, until their death. (Reference: Chapter 3) What is a Locked-in Retirement Account (LIRA)? An account created for the transfer of funds from a defined benefit pension plan, defined contribution pension plan or pooled registered pension plans. (Reference: Chapter 3) They are funded by a premium or a deposit to the annuity contract by the contract's owner. How are payout annuities funded? 1. Easy to understand 2. Income security 3. Creditor protection 4. Estate planning benefits 5. Annuitant protection What are the advantages of annuities? The person that receives money from the annuity contract. The annuitant may also be known as the "annuitant grantee" or "payee". What is an annuitant? All annuitants know when to expect their annuity payment based on the schedule in the annuity contract. Annuities with a level, or set, payment provide income security because the annuitant also knows in advance how much each payment will be. This is guaranteed by the issuer. This knowledge allows the annuitant to plan his finances and spending, which is one of the reasons annuities are a good choice for retirement income. Why are annuities a good choice for retirement income? The risk of outliving one's money. What risk does lifetime income eliminate? Locked-in retirement account What does LIRA stand for? 1. A named beneficiary and the beneficiary must be designated as irrevocable, or be a spouse, child, grandchild, or parent. 2. The annuity contract must have been purchased before the owner became insolvent Name one of the conditions that must be met in order for creditor protection to be valid. Permanent life insurance and a life annuity. What two products make an insured annuity? A payout annuity pays income. The income stream is a blend of interest and principal created from the deposit of capital to the contract and is based on the annuity rate applied at the time the contract is issued What is the purpose of a payout annuity? An accumulation annuity is a form of savings with a maturity date. An income stream is not created by an accumulation annuity. Its purpose is investment growth. What is the purpose of an accumulation annuity? When a single life is the basis for the contract, the annuity is called a 'single' or straight life contract. When is an annuity called a "single"? No. When registered savings are the source of funding the policy owner and annuitant must be the same When registered savings are the source of funding for a life annuity, can the policy owner and annuitant be different people? It may begin immediately or at a selected future date. When does annuity income begin? Accumulation and income What are the two phases of a deferred income annuity? A level payment is a payment that is the same for the duration of the annuity. What is level income? Indexed income is income that increases over the payment period. Indexing an annuity increases payments annually by a percentage selected by a percentage selected by the policy owner. What is indexed income? Consumer Price Index What does CPI stand for? A variable income annuity is an immediate life annuity with the ability for the annuitant to earn market-linked returns What is a variable income annuity? The annuity rate is a dollar figure quoted to future policy owners based on the current interest rate and other factors that pertain to the annuitant and how the annuity contract is structured. What is the annuity rate? The age of the annuitant when payments begin is a significant contributor to the amount received as income from life annuities. The older the annuitant, the more paid since lifespan is a shorter period of time. How does the age of the annuitant affect the annuity rate? - To guarantee that, in the event of death during a term annuity, an equivalent amount is still paid out from the contract. - To guarantee an income for a spouse - To guarantee that, at minimum, the premium paid to purchase the annuity contract is repaid to the investor What are the reasons an annuity would have a guarantee? The beneficiary receives an amount corresponding to the difference between payments received before death and the initial capital. The annuity is called 'a cash refund annuity' if the beneficiary receives a lump sum. What is a cash refund annuity? There would be no payment made to a beneficiary. The balance of the sum invested with the insurer would then belong to the insurer. What happens if the annuitant of a single life contract dies after receiving his first monthly payment on a non-guaranteed annuity? It can be managed by adding a guarantee period and beneficiary to the contract. How can the risk of loss of capital be managed in regards to a life annuity? Market Value Adjustment What does MVA stand for? When a withdrawal is made from an accumulation annuity a market value adjustment may be charged. The MVA is a penalty charged to the investor, and is based on interest rates (current rates as well as contract rates), expenses, and the amount of time remaining until the contract maturity date. What is the MVA? The timing of when the tax is paid is the difference. What is the difference in how an annuity is taxed when it is prescribed vs. when it is taxed on an accrual basis? A prescribed annuity pays the same amount of interest and investment capital to the annuitant in every payment. Payments are thus said to be level. What is a prescribed annuity? 1. Annuity cannot be indexed 2. Annuitant and policy owner must be the same person unless the annuity is joint life, with a spouse or sibling named as co-annuitant 3. Payments must begin no later than December 31 of the year following the purchase date What are the requirements that must be satisfied for annuity income to be prescribed? - Lives covered - Timing of payments - Type of funding - Type of payments - Duration of payments What are the features that annuities can be classified by?