Annuity Products & Structures Flashcards
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Read the first 7 Annuity Products & Structures flashcards as text
A client purchases a single premium immediate annuity (SPIA) and elects a 'cash refund' option. If the client dies before receiving total payments equal to the purchase price, the beneficiary receives:
Answer: A lump sum equal to the difference between the purchase price and total payments received
The cash refund option guarantees that the insurance company will pay the beneficiary a lump-sum equal to any unrecovered premium if the annuitant dies before the purchase price is fully paid out.
A 'joint and 100% survivor' annuity payout differs from a 'joint and 50% survivor' payout primarily in that:
Answer: The survivor receives the full payment amount rather than a reduced amount
Under a joint and 100% survivor option, the same full payment continues to the surviving annuitant, whereas a joint and 50% survivor option reduces the payment by half upon the first death.
Which feature of a fixed deferred annuity allows the owner to withdraw a percentage of the account value annually without incurring a surrender charge?
Answer: Free withdrawal allowance
Most fixed deferred annuities include a free withdrawal allowance—typically 10% of account value per year—that permits penalty-free partial surrenders during the surrender charge period.
The 'exclusion ratio' in non-qualified annuity taxation determines:
Answer: The portion of each annuity payment that is a tax-free return of cost basis
The exclusion ratio (cost basis ÷ expected return) determines the fraction of each annuity payment that represents a non-taxable return of the owner's after-tax cost basis.
Which type of annuity charges a mortality and expense (M&E) risk fee that compensates the insurer for the insurance guarantees and covers administrative costs?
Answer: Variable annuity
Variable annuities assess an M&E risk charge—typically 0.5%–1.5% of sub-account assets annually—to cover the insurer's cost of providing death benefits, living benefit guarantees, and administrative services.
A 'bailout' provision in a fixed deferred annuity allows the contract holder to surrender the contract without penalty if:
Answer: The renewal interest rate falls below a stated minimum trigger rate
A bailout provision grants a penalty-free surrender window if the insurer renews the credited interest rate below the bailout rate specified in the contract.
An 'accumulation unit' in a variable annuity represents:
Answer: A measure of the owner's proportional ownership in a sub-account during the accumulation phase
During accumulation, premiums purchase accumulation units in chosen sub-accounts; the unit value fluctuates daily with the sub-account's investment performance.