Term
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Definition
| A contract with an insurance company that provides for payments to the annuity owner over the life of the contract term. |
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Term
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Definition
| The person receiving the payments from an annuity. |
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Definition
| Insurance license; variable requires securities registrations. |
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Term
| Tax-Deferred Accumulation |
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Definition
| Only required to pay taxes when payments are received. |
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Term
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Definition
| Annuity funded with a single lump sum payment; the contract begins making payments to the annuitant on the first interval after the deposit is received. |
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Term
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Definition
| An annuity that is either purchased with a single lump sum or is purchased through periodic payments. The payout is delayed until the contract is annuitized at some point in the future; used to accumulate funds for retirement. |
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Term
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Definition
| If withdrawn before age 59 1/2, there's a 10% penalty. |
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Term
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Definition
| An account fundamentally invested in long-term debt instruments, to provide a stable return to fund the guarantees made by the insurance company on its fixed insurance and annuity products. |
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Term
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Definition
| An account established and maintained by the insurance company under which income, gains and losses are credited to or charged against the account without regard to other income, gains or losses of the insurance company. |
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Term
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Definition
| Annuity; kept in the general account and provides fixed payments of specified amounts for the contract term. Guarantees a minimum rate return, so the company assumes the investment risk. Vulnerable to inflation. |
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Term
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Definition
| Annuity; kept in the separate account and provides variable dollar payments at regular intervals for the contract term. Provides no guaranteed rate of return, so annuitant assumes investment risk. Resistant to inflation. |
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Term
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Definition
| Establishes the maximum they can charge the contract. |
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Term
| Operating Expense Risk Fee |
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Definition
| A fee deducted from the separate account to protect the company against rising operating expenses. |
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Term
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Definition
| The greater of the gross payments made into the contract that the beneficiary receives in the event the contract owner dies during the accumulation period. |
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Term
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Definition
| The current value of the assets held in the separate account less any surrender charges; given when an annuity is terminated. |
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Term
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Definition
| Allows a policy holder to roll the cost basis from the first product into the second, thereby deferring recognition and tax on any capital gain realized in the exchange. |
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Term
| 1035 Exchange possibilities: |
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Definition
-A life insurance contract to another life insurance contract.
-A life insurance contract to an annuity.
-An endowment contract to an annuity contract.
-An annuity contract to an annuity contract. |
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Term
| Level Load (Level Sales Charge) |
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Definition
| A charge option on a variable annuity that deducts from each installment made into the contract. |
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Term
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Definition
| The charge to the contract owner is usually contingent on the length of time the annuity is held, and is assessed at withdrawal. |
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Term
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Definition
1. Investment Management Fee
2. Mortality Risk Fee
3. Expense Risk Fee
4. Premium Taxes
5. Administrative Expenses |
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Term
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Definition
| Beings with the date the annuity contract becomes effective and continues until the payout begins. |
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Term
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Definition
| The accounting measure used to identify the contract owner's interest in the separate account during the accumulation period. |
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Term
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Definition
| This period begins at the conclusion of the accumulation period; the accounting measure is used to determine the payment amounts during this period (annuity units). |
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Term
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Definition
| The exchange of accumulation units into annuity units. |
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Term
| Assumed Interest Rate (AIR) |
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Definition
| A rate assigned by the company as an assumption of a reasonable rate of return on the investments in the separate account. |
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Term
| How to convert Accumulation Units into Annuity Units: |
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Definition
1. Calculate the annuitant's interest in the separate account (# Accum. Units x current value per unit)
2. Calculate the first monthly payment (based on age, life expectancy, and settlement option)
3. Calculate the value of future payments (based on value of each annuity unit) |
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Term
| Types of Settlement Options: |
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Definition
1. Straight Life Annuity
2. Life Annuity with Period Certain (fixed period)
3. Unit Refund Life Annuity
4. Joint and Last Survivor Life Annuity |
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Term
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Definition
| This option gives the annuitant the highest periodic payment, but has the most risk. The annuitant receives payments for as long as they live, but at death, all payments stop. |
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Term
| Life Annuity with Period Certain |
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Definition
| Periodic payments are made to the annuitant for a specified number of years. If the annuitant dies before the end of the period, the remaining payments due will be made in a lump sum or installments to the named beneficiary. |
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Term
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Definition
| This option provides periodic payments during the annuitant's lifetime. If the annuitant dies prior to receiving an amount equal to the value of the annuity units, the remainder goes to the beneficiary. |
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Term
| Joint and Last Survivor Annuity |
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Definition
| In this option, payments are made to 2 people. If one dies, the payments are continued to the surviving annuitant. Payments cease when the last annuitant dies. Provides the largest promise, but is the most expensive. |
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Term
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Definition
| Insurance that covers a specified period of time and only provides a death benefit. Suitable for those who want the most death benefit at the least cost |
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Term
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Definition
| Insurance that provides a death benefit and an accumulation of cash value. |
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Term
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Definition
| Include immediate family members, business partners, etc., whom a financial interest or affection exists. |
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Term
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Definition
| Represents the accumulated value that an insurance company will return to policy owner upon the surrender of the policy. |
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Term
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Definition
| The possibility of an investment losing or not gaining in value. |
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Term
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Definition
| The fee paid by the policyowner to the insurance company in exchange for the protection. |
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Term
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Definition
| Policy owners of this insurance seek greater death benefits and higher cash values; they anticipate that the performance of the separate account will produce investment returns that are superior to those of traditional life and will offset inflation. No guarantee of cash value and owner assumes risk; assets kept in separate account. |
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Term
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Definition
| Describes a whole life or variable life policy, that allows the contract owner to vary the amount and frequency of premiums as long as the minimum cash value maintained is sufficient to support the cost of insurance. Guarantees min. interest rate and insurer assumes risk. May or may not provide a death benefit; assets kept in general account. |
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Term
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Definition
| A type of insurance that provides a death benefit, has guaranteed cash value, and insurer assumes risk; assets kept in general account. |
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Term
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Definition
| The cash value of the policy minus outstanding loans or unpaid interest charges. |
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Term
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Definition
| This clause provides the policyowner receive the accumulated cash value should premium payments cease and the policy is surrender. |
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Term
| Sales Charges on Variable Life Insurance: |
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Definition
-Max is 9% for up to 20 years.
-Free-look period of 45 days or contract holder can receive refund.
-During the first year, the max. sales charge is 50% of premium paid.
-If surreneders in first 2 years,owner receives NAV of their account, and any charge that exceeds 30% of the first year's premium, plus an charge that exceeds 10% of the second year's premium. |
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Term
| Types of Settlement Options: |
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Definition
1. Interest Option
2. Fixed-Period Option
3. Fixed-Amount Option
4. Life Income Option |
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Term
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Definition
| Settlement option; the insurance company holds and invests the proceeds from the policy. The beneficiary also receives a guaranteed interest rate and any excess interest earned, can withdraw part or all of the proceeds or change to another settlement option. |
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Term
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Definition
| Settlement option; The beneficiary receives equal installments, at regular intervals, for specified time (installments are payments of both principal and interest). |
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Term
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Definition
| Settlement Option; The beneficiary receives periodic installments of equal amounts until the proceeds are exhausted. The payments consist of both principal and interest. |
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Term
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Definition
| Settlement option; Provides for a guaranteed income for the life of the beneficiary. Payments are based on actuarial calculations, and the amount is determined by which of the 4 types of life income options is selected. |
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Term
| 4 Types of Life Income Options: |
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Definition
1. Straight Life
2. Cash Refund
3. Life Income with Period Certain
4. Joint and Last Survivor Income |
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Term
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Definition
| Life income option; provides payments for as long as the beneficiary lives. Payments cease at the beneficiary's death regardless of the amount paid out. |
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Term
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Definition
| Life income option; guarantees that the insurance pays out at least the amount of the original proceeds. In the event the beneficiary dies before all monies are received, the balance is paid to a secondary beneficiary. |
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Term
| Life Income with Period Certain |
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Definition
| Life income option; provides lifetime income to the beneficiary for a minimum specified time. If the beneficiary dies prior to the end of the period, payments are made to a secondary beneficiary. |
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Term
| Joint with Last Survivor Income |
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Definition
| Life income option; two beneficiaries receive lifetime income. When the first beneficiary dies, payments continue uninterrupted for the remainder of the joint beneficiary's life. |
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Term
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Definition
| Refers to any financial transaction in which the owner of a life insurance policy sells a policy that is no longer needed to a third party investor at a discount to its face value. |
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Term
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Definition
| Life settlements used for persons who are terminally ill. |
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Term
| Life Settlement and Viatical Risks: |
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Definition
1. Maturity- The difficulty to predict maturity (death of the insured).
2. Legal Challenge-the legality of the settlement may be challenged.
3. Liquidity Risk- each settlement is a unique contract, not liquid. |
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Term
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Definition
| Taxpayers who are age 50 or older are entitled to make additional contributions. Currently, taxpayers may contribute up to $1,000 each year, making their total contribution $6500. |
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Term
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Definition
| Describes a cash and or asset contribution to a new IRA by an individual within 60 days of receiving an eligible distribution from an old plan. |
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Term
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Definition
| Describes a movement of cash and/or assets that takes place directly between the trustee/custodian of an old plan and the trustee of a new plan. |
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Term
| Penalty-Free premature distributions: |
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Definition
-Death of account owner
-Permanent disability
-Pay for medical insurance premium if the owner is disabled for at least 12 weeks, pay for med. expenses in excess of 7.5% of the owner's income
-If distributions are made in equal periodic installments for a min. of 5 years or until they reach 59 1/2
-To pay for education expenses
-For down payment on a first-time home purchase, $10k limit. |
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Term
| IRA Distributions upon Death |
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Definition
-Must be drawn by the end of the 5th year after death.
-Funds may be withdrawn based on the beneficiary's life expectancy.
-If the ben. is the surviving spouse, they may roll them into an existing IRA or employer-sponsored qualified plan. |
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Term
| Qualified Roth Distributions: |
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Definition
-To the estate or beneficiary at the owner's death.
-To a disabled owner.
-First-time home buyer.
-Higher education expenses. |
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Term
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Definition
| These plans require IRS approval and the dollar invested are before-tax dollars, creating a zero cost basis for the investor. |
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Term
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Definition
| These plans may discriminate and do not need IRS approval. After-tax dollars, that establish the investor's cost basis. Investor pays taxes on the withdrawal that exceeds the cost basis. |
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Term
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Definition
Is a type of nonqualified plan in which the employer promises to pay compensation to the employee in the future.
-Contributions are not tax-deductible
-Does not receive IRS approval
-Employer may discriminate
-Tax-deferred growth
-Any excess is taxed when received. |
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Term
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Definition
| A nonqualified, tax-deferred account that is made available to employees of public institutions; employees set aside current compensation into the account on a pretax basis through a salary deferral agreement with the employer. |
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Term
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Definition
| Qualified plans that are restricted to self-employed individuals. Require employees who are at least 21, have been employed for at least a year, work a minimum of 1000 hours per year, and who are non-seasonal. Max contributions of 20% annually. Distributions taxed as ordinary income. |
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Term
| Simplified Employee Pension (SEP) Plans |
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Definition
| These plans allow self-employed individuals to contribute to their retirement in amounts greater than are available with traditional IRAs. Requires employees to be 21, work for the same employer for 3 of the last 5 years, and has received at least an IRS-specified amount in compensation from the employer. Contributions are made by the employer and are tax-deductible and grow on a tax-deferred basis. |
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Term
| Savings Incentive Match Plan for Employees(SIMPLE) Plan |
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Definition
| This plan is available to businesses that employ less than 100 employees. Plan funding comes from voluntary employee salary deferral with no salary percentage limit; employer must match up to at least 3%. No loans permitted, and there is a 2 year waiting period before assets can be rolled into an IRA. |
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Term
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Definition
| In this plan, the employer specifies an amount of benefits promised to the employee on their normal retirement date. The payments are based on a specified formula that considers age, years of service, salary history, and is adjusted each year for inflation. Favors older employees nearing retirement age. |
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Term
| Defined Contribution Plans |
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Definition
| These plans are more flexible and less expensive for employers than defined benefit plans. Favor young employees just starting out. Employer contributions are required. |
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Term
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Definition
| This plan allows employees to take a reduction in their current salary by deferring amounts into a retirement plan. The company can also match the employee's contribution. Contributions are excluded from their gross income; distributions are taxed as ordinary income. |
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Term
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Definition
| In this plan, employers are allowing their employees to share in the profitability of the company. Employer contributions must be allocated in a nondiscriminatory manner based on the prearranged method (comp-to-comp). |
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Term
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Definition
| Method of determining participants in a profit-sharing plan's allocations. The employer first calculates the sum of all the employees' compensations (total comp) then divides the individual employee's compensation (employee comp) by the total comp, then multiplies each employee's fraction by the amount of the employer contribution. |
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Term
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Definition
| Refers to the systematic transfer of ownership between the employer and the employee of the employer's matching funds in a qualified retirement plan. |
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Term
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Definition
| Is a not a taxable event because the proceeds are made payable to the successor custodian. |
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Term
| Employee Retirement Income Security Act(ERISA) |
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Definition
Passed in order to protect employees in the private sector against abuse and discrimination in pension and retirement plans. Establishes the following guidelines:
-Eligibility rules
-Proper accounting and administration
-Vesting schedules
-Nondiscrimination
-Naming of beneficiaries
-Communications of plan rules and benefits |
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Term
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Definition
| Is a qualified plan available to employees of certain nonprofit organization and to employees of public school systems. |
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Term
| Coverdells (Education IRAs) |
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Definition
| Is a trust or custodial account created for the purpose of paying the qualified education expenses of the designated beneficiary. Max deposit of $2k a year. |
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Term
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Definition
| A state-sponsored college savings plan. |
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Term
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Definition
| A type of 529 that is more restrictive, requiring state residency and limiting the educational institutions that may qualify. Contributions are after-tax dollars, grow tax-deferred, withdrawals are tax-free if used for higher education; contributions are considered a gift and subject to gift taxes. |
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