Michigan Variable Annuities - Exam Questions and Answers with complete solution

accumulation period/units - a $5,000 prem deposit in a VA in which the units are valued at $5, would purchase 1,000 accumulation units. New prem pmts change the number of accumulation units in a purchaser's account, and market fluctuations change each unit's value, so remember that both the number and value of accumulation units change Accumulation Phase - the period of time by which the owner of the contract pays in to the annuity; a beneficiary must be named if the policy owner dies during the accumulation phase. Accumulation Units - premiums an annuitant pays into a variable annuity are credited as ______. At the end of the accumulation period accumulation units are converted to annuity units. administration charge - under an insurance or annuity contract, the charge the insurance company makes to compensate for maintaining records, accounting and reports generation Annuitant - The person that buys an annuity; may or may not be an annuity's policyowner; receives the distribution from an annuity contract annuity - a contract in which the insurer agrees, for a price, to make regular pmts to an individual for life or some fixed period annuity period/units - when annuitized, accumulation units are converted to a set number of annuity units; this number becomes one of the factors used to calculate the payout each month during the annuity phase (once the # of annuity units is chosen, it will not change, but the value of each unit change) Annuity Phase - the period of time when the owner recieves payment; 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; accounting measure used to determine the amount of each pmt of the annuitant during the annuity (payout) phase of a variable annuity (number of annuity units never changes)Applying AIR to variable annuity - applies to the variable annuity unit value and any payouts, but not o the variable accumulation value (only a separate account return above the AIR would increase the variable annuity unit values and pmts) Applying AIR to variable life - applies to the variable death benefit, but not var. cash value (only a separate account return above the AIR would increase the variable policy death benefit) Are personal life insurance dividends taxable? - No, but if you decide to keep the dividends in the account to earn interest, interest earned is taxable and not tax-deferred Assumed Interest Rate (AIR) - arbitrary rate of return set by the insurer for any separate account they establish; VA owner ust experience a separate account net investment rate of return that exceeds the AIR in order for those product values to go up Assumed Interest Rate (AIR) - Rate of growth built into an annuity table which determines payout on a variable annuity; forms the basis for an initial annuity pmt as well as a "floor" from which to measure gain charges deducted from the premium include the following: - -admin fees -sales load (charge) -state prem taxes charges deducted from the separate account include the following: - -mortality expense (cost of insurance) -expense risk fee -investment mgt fee Combination Annuities - Combo offers features of fixed and variable contracts -Fixed portion offers guaranteed rate -Variable portion tries to achieve higher rate of return-$ in fixed portion goes to general account for conservative investment -$ in variable portion goes to separate account for stocks, bond, mutual funds -Reps must have securities and insurance licenses Combined Annuity - "balanced"; An annuity combining the features of the fixed and variable annuities. Death Benefit Guarantee - an amount equal to the higher of the separate account balance or the sum of the purchase pmts, which is paid to the beneficiary of a variable annuitant in the event of their death during the accumulation phase Deferred Annuity - An annuity that starts sometime in the future. difference between whole life and universal life - Whole life and universal life insurance are both types of permanent life insurance. Whole life insurance offers consistent premiums and guaranteed cash value accumulation, while a universal policy provides flexible premiums and death benefits. You can borrow against the cash value of a whole or universal policy Direct Method - an approach to managing a variable products separate account that utilizes an open-ended investment company (similar to a mutual fund family) created inside the structure of an insurer diversification - an investing technique characterized by buying a variety of different investments so that the market risk is spread out and reduced Dual Licensure - requirement that a person who sells variable life or variable annuities must be state licensed to sell life insurance, and also federally licensed as a reg rep of an NASD member to sell variable products exchange privilege for variable policies - mandated by the SEC for 24 monthsexclusion ratio - method of determining which part of an annuity payment is taxable, and which part represents the tax-free return of the annuitant's after-tax cost basis. annuity's cost basis/total expected return Expense Guarantee - a guarantee made by an insurer that expenses for a variable product will not exceed certain maximum levels Fixed Amount Option - an insurance or annuity settlement option in which a chosen amount is paid out for an approximate length of time when principal and interest are exhausted Fixed Annuity - an annuity providing that the insurer will pay the annuitant a guaranteed, fixed amount during the annuity phase Fixed Period Option - an insurance or annuity settlement option in which an approximate amount is paid out for a chosen length of time when principal and interest are exhausted Flexible Premium Deferred Annuity (FPDA) - a deferred annuity purchased with a series of payments, which may be irregular as to amount or timing flexible premium policies = - variable universal life policy flexible premium variable life - a type of life insurance, also known as variable universal life, which is characterized by flexible premiums, adjustable death benefit, and the ability of the owner to mae partial surrenders General Account - the account that holds all of the assets of an insurer other than those in the separate accounts; holds the premiums for all fixed life and annuity products and is typically conservatively invested in bonds and commercial real estate to produce a relatively stable return growth - an investment objective that focuses on long-term capital appreciation rather than immediate incomeguaranteed death benefit - protects the principal against loss due to market declines; assures contact owner that his/her beneficiaries will receive at least the amount originally invested in the annuity if death occurs before the contract's maturity date (standard death benefit payable is usual greater of 1) the amount of prems paid, less any withdrawls; or 2) the contract's accumulated value)