FLORIDA INSURANCE 2-14 2025 QUESTIONS WITH
ANSWERS GUARANTEE A+
✔✔Variable Annuities - ✔✔- Payments fluctuate according to the value of an account
invested primarily in common stocks
- provides conservative to aggressive investments that are not guaranteed
✔✔Tax Treatment of Annuities - ✔✔- Taxes are only paid when interest is withdrawn
- Just like the IRA, the 10% excise tax penalty exists
- The exclusion ration allows clients to receive income partially income tax free
- Section 1035 exchanges are a way to move annuity funds income tax free
- No Capital Gains tax to the individual during the accumulation period of a variable
annuity
✔✔Exclusion Ratio - ✔✔= Contract Investment/Life expectancy
- Considered 100% in variable annuities
✔✔Equity Indexed Annuities - ✔✔- Established in the mid 90s to compete with indexed
mutual funds
- A form of fixed rate annuity
- Cash value of equity indexed contracts usually grow at a minimum interest rate
- Credits interest to the annuity's value
✔✔Indexing Methods - ✔✔- approach used to measure the amount of change in the
index
- Ratcheting, High-Water Mark, Point-to-Point
✔✔Ratcheting - ✔✔o Comparing the index value at the end of the contract year with the
index value at the start of the contract ear
✔✔High Water Mark - ✔✔o Decided by look at the index value a various points during
the term, usually the annual anniversaries of the date the annuity was first purchased.
✔✔Point to Point - ✔✔o Based on the difference between the index value at the end of
the term and the index value at the start of the term.
✔✔Participation Rate - ✔✔- Decides how much of the increase in the index will be used
to calculate index-linked interest
✔✔Accumulation Units - ✔✔- Typically is a function of the after-tax interest earned,
dividends received and capital gains (or losses) incurred, minus investment expenses
associated with the insurer equity investment portfolio supporting the annuity
✔✔Value of one share = - ✔✔Total amount of units/Amounts of units outstanding
, ✔✔Annuity Units - ✔✔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.
✔✔Similarities of Fixed and Variable Annuities - ✔✔- Retirement income is the primary
purpose
- Purchase methods are the same
- They have the same types of annuity options
- They have the same concept of accumulation and annuity periods
- Partial surrender provisions are the same
- The guarantees of expense and mortality are alike
✔✔Differences of Fixed and Variable Annuities - ✔✔- The variable annuity holds no
guarantee of the principle, interest, or the amount of payment
- The variable annuitant bears the investment risks
- Variable annuities are regulated by both state and federal governments
✔✔Social Security - ✔✔- Originally intended to be a retirement program for the primary
worker
- Pay as you go system
- To provide for the general welfare of those U.S. citizen who are 65 years of age and
older
✔✔Taxes of Social Security - ✔✔- 6.20% goes to OASDI and 1.45% goes to Medicare
for a total of 7.65%
- Self-employed workers are taxed 15.3%
✔✔Currently Insured vs. Fully Insured - ✔✔- Credits are the determining factor
- Each credit = $1,120 annual FICA taxed earnings with an annual limit of four credits
per year
o $1,120 = 1 credit 2,240 = 2 credits .. 6,300 = 4 credits (max)
- Fully insured = 40 quarters of participating employment
- Currently insured = 6 credits in the last 13 quarters prior to death
✔✔Social Security Benefits - ✔✔- Were computed on a workers average monthly wage
(AMW) if the person became eligible for benefits before 1979. Since 1979, the
calculation has been based on the workers average indexed monthly earnings (AIME)
✔✔Qualified for Retirement Plans - ✔✔- Qualified meet requirements and receive tax
benefits, nonqualified do not
✔✔Employee Retirement Income Security Act of 1974 - ✔✔- ERISA
- to protect employees from possible loopholes in retirement plans
ANSWERS GUARANTEE A+
✔✔Variable Annuities - ✔✔- Payments fluctuate according to the value of an account
invested primarily in common stocks
- provides conservative to aggressive investments that are not guaranteed
✔✔Tax Treatment of Annuities - ✔✔- Taxes are only paid when interest is withdrawn
- Just like the IRA, the 10% excise tax penalty exists
- The exclusion ration allows clients to receive income partially income tax free
- Section 1035 exchanges are a way to move annuity funds income tax free
- No Capital Gains tax to the individual during the accumulation period of a variable
annuity
✔✔Exclusion Ratio - ✔✔= Contract Investment/Life expectancy
- Considered 100% in variable annuities
✔✔Equity Indexed Annuities - ✔✔- Established in the mid 90s to compete with indexed
mutual funds
- A form of fixed rate annuity
- Cash value of equity indexed contracts usually grow at a minimum interest rate
- Credits interest to the annuity's value
✔✔Indexing Methods - ✔✔- approach used to measure the amount of change in the
index
- Ratcheting, High-Water Mark, Point-to-Point
✔✔Ratcheting - ✔✔o Comparing the index value at the end of the contract year with the
index value at the start of the contract ear
✔✔High Water Mark - ✔✔o Decided by look at the index value a various points during
the term, usually the annual anniversaries of the date the annuity was first purchased.
✔✔Point to Point - ✔✔o Based on the difference between the index value at the end of
the term and the index value at the start of the term.
✔✔Participation Rate - ✔✔- Decides how much of the increase in the index will be used
to calculate index-linked interest
✔✔Accumulation Units - ✔✔- Typically is a function of the after-tax interest earned,
dividends received and capital gains (or losses) incurred, minus investment expenses
associated with the insurer equity investment portfolio supporting the annuity
✔✔Value of one share = - ✔✔Total amount of units/Amounts of units outstanding
, ✔✔Annuity Units - ✔✔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.
✔✔Similarities of Fixed and Variable Annuities - ✔✔- Retirement income is the primary
purpose
- Purchase methods are the same
- They have the same types of annuity options
- They have the same concept of accumulation and annuity periods
- Partial surrender provisions are the same
- The guarantees of expense and mortality are alike
✔✔Differences of Fixed and Variable Annuities - ✔✔- The variable annuity holds no
guarantee of the principle, interest, or the amount of payment
- The variable annuitant bears the investment risks
- Variable annuities are regulated by both state and federal governments
✔✔Social Security - ✔✔- Originally intended to be a retirement program for the primary
worker
- Pay as you go system
- To provide for the general welfare of those U.S. citizen who are 65 years of age and
older
✔✔Taxes of Social Security - ✔✔- 6.20% goes to OASDI and 1.45% goes to Medicare
for a total of 7.65%
- Self-employed workers are taxed 15.3%
✔✔Currently Insured vs. Fully Insured - ✔✔- Credits are the determining factor
- Each credit = $1,120 annual FICA taxed earnings with an annual limit of four credits
per year
o $1,120 = 1 credit 2,240 = 2 credits .. 6,300 = 4 credits (max)
- Fully insured = 40 quarters of participating employment
- Currently insured = 6 credits in the last 13 quarters prior to death
✔✔Social Security Benefits - ✔✔- Were computed on a workers average monthly wage
(AMW) if the person became eligible for benefits before 1979. Since 1979, the
calculation has been based on the workers average indexed monthly earnings (AIME)
✔✔Qualified for Retirement Plans - ✔✔- Qualified meet requirements and receive tax
benefits, nonqualified do not
✔✔Employee Retirement Income Security Act of 1974 - ✔✔- ERISA
- to protect employees from possible loopholes in retirement plans
