CAS Annuity Riders and Contract Provisions Flashcards
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Read the first 6 CAS Annuity Riders and Contract Provisions flashcards as text
What is the 'free-look' provision in an annuity contract?
Answer: The right to cancel the contract within a specified period and receive a full refund
The free-look provision gives the contract owner a set period (typically 10–30 days after receipt) to review and cancel the annuity without penalty, receiving a full refund of premiums paid.
In an annuity contract, what is a 'market value adjustment' (MVA)?
Answer: A formula that adjusts the surrender value up or down based on interest rate changes
A market value adjustment (MVA) modifies the surrender value of certain fixed or fixed-indexed annuities based on the difference between current interest rates and the rate at time of purchase, which can increase or decrease the amount received on surrender.
What is the purpose of a 'bailout' provision in a fixed annuity contract?
Answer: To allow the owner to surrender without penalty if the renewal rate falls below a specified minimum
A bailout provision allows the annuity owner to surrender the contract without surrender charges if the renewal interest rate is set below a specified trigger rate, protecting the owner from being locked into low returns.
Which annuity contract feature determines how the contract value will be distributed to beneficiaries upon the owner's death?
Answer: Beneficiary designation and death benefit provision
The beneficiary designation and death benefit provision specify who receives the annuity's value upon the owner's death and how that value is calculated and distributed.
What happens when an annuity contract reaches the 'annuity date' or 'maturity date'?
Answer: The accumulation phase ends and the owner must choose an income or distribution option
The annuity date (maturity date) marks the end of the accumulation phase; at that point, the contract owner must elect a distribution or income option, such as annuitization or a lump-sum withdrawal.
A 'stepped-up' death benefit in a variable annuity works by:
Answer: Locking in the highest contract anniversary value as the death benefit
A stepped-up death benefit periodically (typically annually) resets the guaranteed death benefit to the current account value if it is higher, locking in investment gains for the beneficiary.