Term
| Three basic means to determine how interest is determined in an indexed annuity. What are they |
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Definition
| 1. Participation rates - if index up by 10%, it will be a percentage of that 10% - but no decrease; 2. spread/asset fees/margin method; 3. caps |
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Term
| What analysis do you complete to see if someone has enough insurance? |
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Definition
| A capital needs analysis. |
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Term
| What is duration of zero coupon bond? What is convexity? |
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Definition
| A duration equal to its maturity. Coupon bonds have a lower duration because coupon bonds pay semi-annual interest whereas zero coupons don't. Large yield changes greater than 1% are measured by convexity. |
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Term
| What protects a commodity buyer against rising prices? |
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Definition
| A long futures hedge to protect against RISING prices |
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Term
| What protects a commodity seller against falling prices? |
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Definition
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Term
| After tax yield equation, |
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Definition
| Annual interest x (100% - investor's tax rate) AIx100%-ITR NOTE - do a few of these for exercise |
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Term
| American optons can be exercised when? |
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Definition
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Term
| When are cash surrender values calculated in a variable policy? |
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Definition
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Term
| Assessing the safety of a bond. |
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Definition
| Cash Flows, Revenue to Assets, Leverage, but NEVER profitability ratios. |
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Term
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Definition
Cash value policy that give you market gains tax free with downturn protection but capped upside. Uses an index to earn interest. As it moves up, so does the return. Gains are TAX Free. Death Benefit TAX free. Caps on return rates and lots of fees. Risker than Fixed Universal which has guaranteed but safter than Variable UL. Need SIGNIFIGANT up front investment. Risks:
+If established during downturn, high premium payments may not meet cash value and it could lapse
+Caps on returns
+Variable premiums and returns and not guaranteed. |
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Term
| Where are futures traded? |
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Definition
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Term
| Who chooses the investments in a whole policy? |
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Definition
| Company - therefore no investment risk. |
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Term
| Who chooses the investments in a universal policy? |
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Definition
| Company - therefore no investment risk. |
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Term
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Definition
Cons:
+Costs - higher investment fees
+More risk |
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Term
| A variable annuity can be a hedge against….? |
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Definition
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Term
| How are death benefits usually paid? |
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Definition
| Interest only; fixed period; installments; lump sum. |
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Term
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Definition
It can accumulate cash value for the policyholder, but beneficiaries only receive the death benefit. It is permanent life insurance that can accumulate cash value tax deferred because you can pay extra premiums which will then get invested. The older you get, the higher your premium will be. You can draw from the savings to pay premium. Facts:
+Access cash value without hurting death benefit, but will be taxed
+Borrow against cash value without tax implications, but interest is calculated
+Flexible premiums, but higher as you age so risk.
+Look at how much you contribute on an annual basis and make sure you are not overpaying - if your premiums are over you death benefit value you might be overpaying
Universal Life—a type of permanent life insurance with a cash value component that earns interest, universal life features flexible premiums. Unlike term and whole life, the premiums can be adjusted over time and can be designed with a level death benefit or an increasing death benefit. |
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Term
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Definition
| Lasts a certain number of years and most affordable. If you die after term - no benefit unless you buy convertible or special product |
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Term
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Definition
| Latin American issued bonds backed by US Treasury Zero Coupon bonds. Fixed or Variable maturing in 10 to 30 years. |
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Term
| Market Capitlization formula |
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Definition
| Market Price x number of shares outstanding. |
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Term
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Definition
| measure of the sensitivity of a bond's market price to changes in interest rates. 5% in price movement for every 1% movement in interest rate = duration of 5. |
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Term
| Can you take out loans against term policies? |
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Definition
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Term
| Are policy loans taxable? |
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Definition
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Term
| Are life insurance death benefits taxable. |
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Definition
| No, unless taken in installments, then interest is taxed; or, if sold to a third party, maybe taxed; or, if estate tax excludes. |
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Term
| What is a period certain annuity? |
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Definition
| Offer payments over a certain period and are then done -- no more payments, even if annuitant still alive. If die, beneficiary continues to get payments until the payment period ends. Usuallay a bridge for wealthy people. Tax deferred. Highly complex products. |
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Term
| How often can you do a 1035 exchange with a life policy? |
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Definition
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Term
| European options can be exercised when? |
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Definition
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Term
| Who chooses the investments in a variable? |
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Definition
| Owner - therefore risk. There will be a separate account for premium payments. |
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Term
| What is a forward contract? |
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Definition
| personal cash agreement to dilver a cash commody to the buyer at some point in future. Spot Price/Cash Price = mean the same thing |
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Term
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Definition
| PVC … Par Value/Conversion Price = Shares |
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Term
| What is point-to-point indexing? |
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Definition
| Refers to a fixed index annuity crediting method. They credit a level of interest to the contract owner. This level can be based on or linked to the performance of equity markets. The level of credited interest is based on the difference in an index value over some period of time or a percentage. Principal and credited interest are protected from loss. |
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Term
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Definition
Stays in force as long as you pay premiums. Accumulates cash value that you can borrow from or use - similar to universal except premiums are NOT flexible.
+Guaranteed death benefit
+Level premiums
+Fixed premiums forever |
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Term
| Modern equity indexed annuities - are they securities? |
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Definition
| Structured liked fixed with fixed interest rates but with fluctuating interst rate linked to an index. Not considered security but must register with insurance commission at state level. |
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Term
| How is cash surrender taxed? |
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Definition
| Taxable as ordinary income if exceed premiums paid. |
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Term
| Explain Credit Spread with bonds. |
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Definition
| The difference between two bonds of similar maturity - generally corporate and treasury. %Yield of one bond MINUS %Yield of another bond x 100 = spread (4.60% = 2.54% = 2.06% x 100 = 206 basis points - the spread. Remember - bonds are quoted in basis points. Higher spreads are riskier. If a credit spreads widens, it becomes risker. |
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Term
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Definition
| The expected yield the investor is expected to receive on the first or next call date. Affected by call premiums, time to call and price paid. |
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Term
| Who bears investment risk with a fixed annuity? |
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Definition
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Term
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Definition
| Used when interest rates are low - foreign company issues bonds in US dollar. |
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Term
| What are permanent life insurance examples? |
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Definition
| Whole; Universal; Variable; Variable universal life; Have death benefit and cash surrender value. |
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Term
| A call premium will cause what? |
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Definition
| Will cause the yield to call on the bonds trading at a discount or par value to be higher than the yield to maturity. |
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Term
| Can options be bought in a margin account? |
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Definition
| Yes, but NOT "on margin" - you have to pay premiums in cash. Whether bought in a margin or cash account, you always have to pay 100% of the premium in cash. |
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Term
| YTM and Basis are the same thing? |
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Definition
| Yes, same and interchangeable. |
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Term
| Is it true that Variable life can be converted to whole life during the first two policy years? |
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Definition
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Term
| What types of bonds are most sensitive to interest rate fluctuations? |
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Definition
| Zero coupon bonds are the most sensitive to interest rate fluctuations. |
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