Variable Products in Insurance Flashcards

Which of the following is a key tax advantage of a variable annuity held in a non-qualified account?

Answer: Investment earnings grow tax-deferred until withdrawal

Variable annuity earnings accumulate on a tax-deferred basis in non-qualified accounts—taxes are owed only when funds are distributed.

What is a 'surrender charge' in a DC variable annuity?

Answer: A penalty imposed by the insurer for withdrawals made during the surrender charge period, usually declining over time

A surrender charge is a back-end fee imposed by the insurer for early withdrawals during the surrender period, designed to recoup distribution costs.

Under DC insurance law, what is the '10% free withdrawal' provision commonly found in variable annuity contracts?

Answer: Allows the policyholder to withdraw 10% of the account value annually without a surrender charge

Most variable annuities allow policyholders to withdraw up to 10% of the account value annually without incurring the surrender charge.

Which of the following describes a 'guaranteed minimum death benefit' (GMDB) in a variable annuity?

Answer: Guarantees the policy will pay the full premium back to the beneficiary, even if the account value is lower due to market losses

A GMDB ensures that beneficiaries receive at least the total premiums paid (or a stepped-up value) as a death benefit, even if market losses have reduced the account value below that amount.

In DC, an immediate variable annuity differs from a deferred variable annuity in which key way?

Answer: Immediate variable annuities begin income payments within one year of purchase; deferred variable annuities accumulate value before annuitization

An immediate variable annuity (SPIA variant) converts a lump sum into variable income payments starting within one year. A deferred annuity accumulates value over an accumulation phase before annuitization.

Under FINRA Regulation Best Interest (Reg BI), how must DC producers approach variable annuity recommendations?

Answer: Recommendations must be in the best interest of the customer, placing the customer's interests above the producer's financial interests

FINRA Regulation Best Interest (Reg BI) requires broker-dealers and their registered representatives to act in the retail customer's best interest when making securities recommendations, including variable annuities.