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Michigan Variable Annuities Exam
Questions and Verified Answers Graded
A Latest Edition 2025-
accumulation period/units - ANSa $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 - ANSthe 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 - ANSpremiums 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 - ANSunder an insurance or annuity contract, the charge the insurance company makes to compensate for maintaining records, accounting and reports generation Annuitant - ANSThe person that buys an annuity; may or may not be an annuity's policyowner; receives the distribution from an annuity contract
annuity - ANSa 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 - ANSwhen 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 - ANSthe period of time when the owner recieves payment; Annuity Units - ANSAt 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 - ANSapplies 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 - ANSapplies 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)
-$ 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 - ANS"balanced"; An annuity combining the features of the fixed and variable annuities. Death Benefit Guarantee - ANSan 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 - ANSAn annuity that starts sometime in the future. difference between whole life and universal life - ANSWhole 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 - ANSan 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 - ANSan investing technique characterized by buying a variety of different investments so that the market risk is spread out and reduced Dual Licensure - ANSrequirement 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 - ANSmandated by the SEC for 24 months exclusion ratio - ANSmethod 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 - ANSa guarantee made by an insurer that expenses for a variable product will not exceed certain maximum levels Fixed Amount Option - ANSan 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 - ANSan annuity providing that the insurer will pay the annuitant a guaranteed, fixed amount during the annuity phase
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) Guaranteed living benefits (GLB) - ANSAccumulation, income, and withdrawal guarantee features of annuities; attractive to older and conservative consumers guaranteed minimum account value (GMAV) - ANSvariable annuity guaranteed life benefit that ensures the contract's account value will be the greater of the premiums paid or the actual account value after a specified period of time, such as 8 or 10 years guaranteed minimum income benefit - ANSvariable annuity guaranteed life benefit that ensures a minimum amount will be available to convert to annuitized income at rate specified in the contract guaranteed minimum income payments - ANSensures that each annuitized income pmt the annuitant receives will be no less than a specified percentage of the first payment (annuitization is obviously required to realize this benefit) Guaranteed Minimum Withdrawal Benefit (GMWB) - ANSA variable annuity rider that guarantees that the owner can withdraw a minimum amount annually without a surrender charge.
Annual withdrawals are usually limited to a specified percentage, such as 5 to 10 percent, of total premiums paid. how long is the free-look period for Michigan annuity contracts - ANS calendar days after purchase date (eligible for full refund including premium paid) if a life insurance policy has been sold (or _____-__-_____) to another party by the policy owner, the death benefit is taxed like a full surrender (any gain minus the cost basis is taxable as income) - ANStransfer-for- value (exceptions: collateral assignments, transfer from 3rd party to the insured, viatical settlements, and business partners) If a withdrawal is for $12,000 and the policy's cost basis is $10,000, how much is taxable? - ANS$2, if the prems paid for a policy totaled $5,000 and a $4,000 withdrawal was taken, what would be the policy's cost basis? - ANS$1, Immediate Annuity - ANSan annuity, purchased with a single premium payment, in which annuity payments begin the next period (one month to one year) after purchase income - ANSan investment objective that focuses on dividends and interest to produce income rather than capital appreciation
Joint Life Income - ANSan insurance or annuity settlement option in which payments continue for as long as both of two annuitants are living Life Income - ANSan insurance or annuity settlement option in which payments are based on mortality and interest calculations and continue for as long as the annuitant lives Life income with period certain - ANSan insurance and annuity settlement option in which payments continue to the longer of the life of the annuitant or the selected certain period. Payments are made to a named beneficiary if the annuitant dies before the expiry of the selected period minimum guaranteed death benefit (VLI) - ANSthe initial face amount of a variable life policy that is guaranteed to be paid to a named beneficiary so long as the scheduled premiums are paid regardless of the performance of the separate account Money Purchase Plan - ANSDefined contribution plan that uses a fixed percentage of employee earnings to defer compensation. It works well for organizations with relatively stable earnings from year to year because the percentage is fixed, and, once established, contributions must be made every year. The contribution limits are the same as for profit-sharing plans. Mortality Guarantee - ANSa basic settlement option guarantee, which promises the insurer will continue annuitized payments for as long as the annuitant(s) live, even beyond mortality data life expectancy
nonforfeiture guarantee - ANSan annuity and cash value life insurance guarantee that the contract owner will not lose the surrender value of the contract should they stop making pmts prior to annuitization or death Other names for pure life settlement - ANS-life income -life annuity prospectus - ANSa detailed summary of the SEC registration statement for a security, which must be provided to the prospect for any variable product sale; an agent is required to provide this material prior to, or concurrently with, any sales presentation refund option - ANSan insurance or annuity settlement option in which payments continue to the longer of the life of the annuitant or until the original principal is paid out; the payments are continued to a named beneficiary; otherwise, a lump sum payment of any remaining balance is made to the beneficiary at the annuitant's death scheduled premium policy = - ANSfixed premium policy OR variable life second life contingency option - ANSlife with period certain (ie. 10 years) so even if the annuitant does or does not die within that timeframe, insurer guarantees to continue the annuity payments to a named beneficiary for the balance of the certain period. Section 1035 Exchanges - ANSdeals with life insurance, annuities, endowments, and qualified long-term care insurance
Separate Account - ANSthe account containing the investments supporting any variable annuity or variable life insurance contracts of an insurer; this account is segregated by federal securities law from the other assets, such as the general account, of the insurer single payment deferred annuity (SPDA) - ANSa deferred annuity created with a single purchase payment Subaccount - ANSan investment portfolio, often similar to a mutual fund, within the separate account; the purchaser of a variable product may be offered a dozen or more of these portfolios among which to direct their investments Suitability Requirements - ANSan NASD principle requiring the agent in a variable products representation to make a conscientious inquiry into the prospect's insurance product needs, financial circumstances, objectives and investment attitudes before consummating the sale target (guideline) premiums - ANSwith flexible-premium products (UL and VUL), this is the premium calculated by the insurer's actuaries, which will maintain the death benefit for the entire life of the insured Tax sheltered annuity - ANSan annuity used in an IRS-qualified retirement plan, such as a 403(b) Plan for the employees of public schools, public hospitals, church organizations and other not-for-profit organizations; in such a plan, both employer and employee contributions are made on a pre-
tax basis and accumulate tax deferred; all withdrawals are then taxed as ordinary income third life contingency option - ANSlife with refund; insurer guarantees payments for life, but if the annuitant dies before the payments received equal the annuitant's basis (the total amount paid for the annuity), then the insurer agrees to pay out the remaining basis to a named beneficiary Universal Life Insurance - ANSa type of life insurance characterized by flexible premiums, an adjustable death benefit and cash values, which may be accumulated on either a fixed or variable basis; mortality charges will be based on annual term; contracts may allow loans, partial withdrawals, or both Valuation - ANSfor variable products, the valuation of the separate account must be performed daily, except weekends and national holidays, and must be based on the mkt value of the underlying securities in the account variable annuity - ANSan annuity contact in which the account value is maintained in a separate account in which portfolio choices are made by the owner of the annuity; there is no minimum rate of return, and investment risk is retained by the annuity owner; annuity payments from a variable annuity will vary according to the performance of the separate account Variable death benefit - ANSwith fixed premium variable life insurance, this is an additional death benefit, which may result from the positive
c. life with refund - ANSb
