Georgia Variable Products Exam 12-GA-62 (Latest 2026/2027 Update) | Questions & Answers | 100% Correct

Georgia Variable Products Exam 12-GA-62 (Latest 2026/2027 Update) | Questions & Answers | 100% Correct Q: No willful violation penalties Answer up to $1,000 for each Q: Willful violation penalites Answer up to $5,000 for each Q: Commission Sharing Answer NOT ALLOWED; *Except with an agent licensed pursuant to this article Q: Required Life Policy Provisions Under the OCGA Answer Cover Grace Period Reinstatement Benefit Base Separate Account Policy Exchange Entire Contract Representation Owner Beneficiary Designation Assignment Misstatement of Age or Sex Incontestability Approval of Commissioner Deferral Settlement Options Basis for Cash Value Premiums for Incidental Benefits Other Provisions--allowed Nonforfeiture Benefits Policy Loan Provisions Q: Cover Statements in boldface type (4 pts larger): Answer -amt or duration of the DB may be variable or fixed -CVs may increase or decrease with experience of the SA Statement describing any minimum DB Provision providing 10-day Free Look Period = total refund of the total premium payments Q: Grace Periods Scheduled Premium: Answer -31-days from premium due date Q: Flexible Premium: Answer -61-days after mailing date of the report to PHs Q: DB Payable: Answer -equals the DB in effect immediately prior to such period, LESS any overdue charges Q: Reinstatement within 2 years of date of lapse owner may be asked to satisfy contract requirements--payment of an amount not exceeding the greater of: Answer -all overdue premiums with an interest rate not exceeding 6%; OR -110% of the increase in cash surrender value resulting from reinstatement plus all overdue premiums for incidental insurance benefits with interest rate not exceeding 6% Q: Benefit Base Answer full description of the benefit base and method of calculation application of any factors used to adjust variable benefits under the policy Q: Separate Account Answer assets valued at least as often as any policy benefits vary, but at least monthly assets shall be available to cover the liabilities of the GA only to the extent that the assets of the SA exceed the liabilities of the SA arising under the VL insurance policies supported by the SA Q: Policy Exchange at any time during the 1st 18 months of the VLI policy, as long as premiums are paid Answer -shall bear same date of issue and age at issue as original -issued on substantially comparable plan of permanent insurance -includes the same riders as the original -subject to equitable premium or CV adjustment Q: Entire Contract policy and any paper attached thereto by the insurer Answer -includes application, if attached Q: Representations Answer designation of officers who are empowered to make an agreement or representation on behalf of the insurer NOT WARRANTIES Q: Owner Answer identifying the owner of the contract Q: Beneficiary Designation Answer conditions/requirements to designate or change beneficiary provision for disbursement of benefits in absence of a beneficiary Q: Assignment any conditions or requirements Answer -collateral assignment; or -absolute assignment Q: Misstatement of Age or Sex Answer description of any adjustment of policy values to be made in this event Q: Approval of Commissioner Answer investment policy of SA cannot be changed without the approval of the insurance commissioner Q: Deferral payment of variable CVs, DBs, Policy loans, or Partial withdrawals or partial surrenders may be deferred Answer -for up to 6 months of the request date -or during any period which NYSE is closed for trading, or SEC has determined state of emergency exists Q: Policy Loan Provision after the policy has been in effect for 3 years, Answer -at least 75% of the CV may be borrowed -amount borrowed shall bear an interest that does not exceed the amount permitted by GIC (8%) Q: Reserve Liability for VL Under OCGA Scheduled Premium Policies Answer -needed to provide the contingency DB occurring when the GMDB exceeds the DB would have been paid in the absence of the guarantee -maintained by the general account of insurer Q: Flexible Premium Policies Answer -for GMDB shall be maintained in the GA of insurer -shall not be less than the aggregate total of the term costs Q: Incidental Benefits Answer -maintained by the general account -any reserves for variable aspects shall be remained in the SA Q: Suicide excludes suicide for the 1st 2 years of issue of the policy Answer *if DBs are increased, the policy may provide an exclude for suicide within 2 years of any DB increase* Q: Incidental Benefits Answer can be offered on a fixed or variable basis Dividends--for participating policies amount of dividend may be: Answer -credited against premium pmts -applied to provided additional fixed/variable benefit life insurance -deposited into the GA at a specified min rate of interest -applied to provide paid-up amounts of fixed benefit 1-year term insurance -deposited as variable deposit in the SA Automatic Premium Loan Provision Answer PH can elect in the application for policy or thereafter an auto premium loan on a basis not less favorable than required of the policy loans under Section 4 *Fixed premium only* Other Policy Provisions Under OCGA Answer Suicide Incidental Benefits Dividends--for PARTICIPATING POLICIES Automatic Premium Loans Partial Withdrawals Other Insurer Filing VLI Policies for Approval must provide: Answer copies and general description of VLI policies intended for use general description of methods of operation for VLI--methods of distribution policies, names of persons/firms involved SA--statement of investment policy, statement of procedures for changing the investment policies Description of any investment advisory services contemplated copy of the statutes and regulations of the state of domicile the insurer under which is authorized to issue VLI policies biographical data of the officers and directors of the insurer on the NACI Uniform Biographical Data Form statement by the insurer's actuary describing the mortality and expense risks the insurer will bear under the policy How soon do sales materials need to be filed with the Commissioner? Answer 30 business days prior to use What does the ICA40 require in terms of a Standard of Conduct? Answer The ICA40 requires the board of directors adopt by formal action a written statement specifying the Standards of Conduct Standards of Suitability Answer each insurer of VLI must establish and maintain a written statement specifiying the Standards of Suitability to be used by the insurer Under what conditions will the Commissioner grant written approval of an insurer? Answer With a sound plan of operation, administrative capability, character, reputation and experience of management, non hazardous financial condition. Pre-Examiniation Course Requirements--Licensing & Approval: Answer must hold current life agents' license and be a FINRA registered representative course must contain a minimum of 8 hours of instruction instructors must have satisfactory training/edu/experience reference materials must be readily available classrooms shall be rooms separate from other activities while instruction is being given subject matter must include GA law, GA insurance department regulations regarding variable life What are the financial requirements of the separate account? The separate account must have enough net investment income and readily marketable assets to meet anticipated withdrawals. When does the insurer have to disclose charges that may be made against the separate account? Prior to or contemporaneously with delivery of the policy. What are the charges to the separate account that must be disclosed? taxes, brokerage fees, tabular costs, administrative expenses, mortality and expense guarantees, excess amounts and those for incidental insurance. For a variable life policy, what must be disclosed to the applicant and when must it be disclosed? At the time of application: 1) nontechnical terms 2) investment policy 3) 10 years of investment performance 4) charges during the previous year and method of valuing assets 5) summary of federal tax aspects 6) an illustration of benefits. What three items are required in an application for variable life insurance? 1) a prominent statement about whether the death benefit is fixed or variable, 2) a prominent statement that cash values may increase or decrease with the SA 3) questions designed to determine suitability. What is required if an agent is suspended, disciplined or incurs any judgement or injunction related to the insurance or securities business? These disciplinary actions must be immediately reported to the insurance Commissioner. What is required in the annual report to policyholders? 1) a financial statement 2) five years of investment return of the SA 3) a list of investments 4) any charges last year 5) a statement of changes in objective, orientation and restrictions. What are the advertising requirements when using testimonials? 1) must be genuine 2) disclosure of financial interest (this is a paid ad) 3) disclose ownership and control 4) solicitor must be licensed in the state. What are the advertising requirements for identifying the insurer? 1) insurer's name must be clear and prominent 2) no connection with government program or agency 3) no indication that purchase is required by a non-insurance company. What type of policies does replacement regulation NOT apply? 1) replacing annuity contracts 2) credit life 3) group life 4) insurance related to pensions, profit-sharing or other benefit plans qualifying for tax deductibility. Separate Account An investment pool funded by contributions to variable contracts, including variable annuities and variable life insurance. These assets are kept separate from the insurance company's general account -acts like a family of mutual funds Fixed Premium Variable Life Insurance -aka scheduled premium variable life or just variable life -fixed, level, and required premiums -fixed and level DB, "guaranteed minimum death benefit" which runs to age 100 -access cash value through policy loans + pay interest -when a policy loan is executed, both cash value and death benefit of the policy are reduced by the loan amount Flexible Premium Variable Life Insurance -aka variable universal life -flexible premiums, which can be increased, decreased, or even omitted at the will by the owner -61 day grace period (entered when the cash value is insufficient to pay the next mortality charge and the policy lapse if this deficiency is not corrected before the end of the grace period) -adjustable DB (proof of insurability required for an increase of DB and will cause increased mortality charges) -cash value is accessed using partial withdrawals rather than policy loans (does not reduce DB and no interest charges) Variable Annuities Annuities that have variable interest rates and benefits. -values accumulate in separate account -performance of separate account NOT guaranteed -owner bears risk Fixed Annuities -premiums accumulate inside the general account -contract provides a guaranteed minimum rate of return (when insurer is willing and able they may pay a current ROR above the guarantee) -FULLY protected against any loss of capital in a declining market -inflation risk (decline in purchasing power) -insurer bears risk New York Life Actuarial method the method that insurers use to convert net investment returns into variable life product values is called Entire Contract Provision -generally located at the beginning of any insurance contract -It warns the consumers to read the full contract, once it has been delivered to them, because the insurer will only be bound to honor what's written there -10 day free look period - the provision separates the insurer from the insurance sales process in that the insurer will not be bound by any errors or omissions made by the agent during VERBAL sales presentation 10 day free look period the amount of time the client has to review the policy Premiums Provision provision that states that fixed premiums that are level and required to be paid to age 100 or death of the insured if it occurs earlier -insurer controls the premiums as to timing and amount Suicide Provision If the insured knowingly misrepresents their health and gets found out, or commits suicide, within the first 2 years of the contract, the insurer is permitted to rescind the contract by returning the premiums and they are not bound by the contract any further incontestable after 2 years a life insurance policy becomes ________________, meaning the insurer cannot fail to pay the death benefit, even in the face of provable fraud or suicide Assignment Provision policy owner's right to assign the policy; 2 types: absolute assignment- transfer all rights of ownership, permanent, new policy owner doesn't need insurable interest in insured; collateral assignment- transfer of partial rights, usually done to secure a loan, partial and temporary 'til debt is repaid Misstatement of Age/ Gender Provision This provision stipulates that if an insured misstates his age or gender on an insurance application, the insurer will have the right to recalculate the benefit that the premiums paid should have purchased, no matter when the discovery is made, and to pay the adjusted amount in the event of a claim grace period is a period of time after a premium payment is due, but while the payment has not been made, and yet the policy remains in force 31 days fixed premium grace period is *applies to whole life and fixed premium variable life 61 days flexible (universal) grace period is *applies to universal life and flexible premium True T or F: Should the insured die during the grace period, the death benefit WILL BE PAID, but the insurer will subtract the overdue premium payment from the death benefit term life policy If no nonforfeiture choice is made by the owner, the insurer will use the remaining cash value to pay for and extended ___________ ___________ __________ which is the default nonforfeiture option Incidental Insurance Benefit Provision A payment received from a variable life insurance policy, other than the variable death benefit and the minimum death benefit, and including but not limited to any accidental death and dismemberment benefit, disability income benefit, guaranteed insurability option, family income benefit, or fixed-benefit term rider. Automatic Premium Loan Provision an overdue premium is automatically borrowed from the cash value after the grace period expires -found only in FIXED PREMIUM products -seen as a "loan" against the policy and incurs interest and reduces both the face amount and cash value until repaid Dividend on participating policies provision is the partial return, by a mutual insurer, of a deliberate premium overcharge -aka a rebate -a mutual insurer can be authorized to create and sell variable products, in which case you would have "participating" variable policies Deferral Provision this provision, which applies to all life insurance policies, authorizes insurers to delay voluntary distributions of cash values and variable death benefits for up to 6 months -does NOT apply to fixed (guaranteed) death benefits, so these fixed death benefits must be paid "immediately", which in most states means 60 days after satisfactory notice of death -REQUIRED: must be disclose deferral provision to the purchaser at the time of application SEC (Securities and Exchange Commission) The separate account is regulated by the State Insurance Departments Variable life contracts and variable annuity contracts are life insurance contracts and therefore regulated by the Whole Life Policy Death Benefit usually described as "fixed and level" to the date of death or to age 100, so long as the required premiums are paid and the policy remains in force **negative connotation of fixed/ level DB is that is does not keep up with inflation (purchasing power risk) Fixed premium variable life death benefit -has two death benefits that are combined when paid at death: 1. Guaranteed Minimum Death Benefit: fixed and level to the date of death or age 100, so long as the fixed and required premiums of the variable policy are paid 2.Variable Death Benefit: is created by a portion of the net investment results of the separate account portfolios selected by the policyowner Guaranteed Minimum Death Benefit fixed and level to the date of death or age 100, so long as the fixed and required premiums of the variable policy are paid Variable Death Benefit The amount paid to a decedent's beneficiary that depends on the investment performance of an insurance company's separate account. The amount is added to any guaranteed minimum death benefit. -goes up and down daily, just as the separate account values do, and there is NO guarantee as to what it will be at any point in the future True T or F: Even if the variable death benefit goes to ZERO, the guaranteed minimum death benefit will be unaffected by this negative market performance and will continue unchanged so long as the fixed and required premiums of the variable life policy are paid Variable Cash Value is created by a portion of the net investment results of the separate account portfolios selected by the policyowners -goes up and down daily, just as the separate account values do, and there is no guarantee as to what it will be at any point in the future -NO guaranteed minimum cash value Free Look Period An amount of time provided to an insured in order to examine the insurance policy -10 days for all life insurance policies from date of policy delivery to the owner -45 days for variable life policies that allow 45 from beginning of application or purchase date Reinstatement Provision permits the insured to reinstate a lapsed cash value life insurance policy (whole life) -the request to reinstate must be submitted to the insurer within 3 years from the date of lapse -a new application and any required proofs of insurability must be submitted -all back premiums must be paid -interest on the back premiums must be paid -any outstanding loans against the policy must be repaid 6% The maximum annual interest an insurer may charge on back premiums is ______ % Variable Products Reinstatement Policy -reinstatement of variable products 1. request must be submitted within two years of the date of lapse 2. All 4 contracts requirements as before (new application, proof of insurability, repaid back premiums and interest, and repay any unpaid loans) 3. ADDTIONAL RULE: is values in separate account have grown substantially due to market activity during the period that the policy was lapsed, the insurer may require the owner to pay an amount based on the missing equity in order to reinstate the policy Contract exchange provision is a provision that occurs only in variable policy, and it is very useful to variable products. It basically says that a purchaser of variable life insurance policy has a period of time to consider their purchase, and to request the insurer to exchange their product to the non-variable version of their policy if they desire -Fixed Premium Variable exchanged for Whole Life -Flexible Premium Variable exchanged for Universal Life 18 months The Georgia Insurance Code specifies that a client shall have not less than ______ months from the effective date of the policy to convert their policy to non-variable form 24 months The SEC provision specifies that a client will have not less than ____ months to make such conversion. **As you might expect, all insurers today use the longer period since 24 months also complies with Georgia's at-least-18-months rule 8% The maximum fixed annual interest rate allowable in Georgia on a life insurance policy loan is __% Policy Loan an advance, secured by the cash value of a whole life insurance policy, made by an insurer to the policyholder Variable Policy Loan -insurers must retain a "cushion" of cash values in a variable policy as they fluctuate daily due to market conditions -The Georgia Insurance Code specifies that after no more than 3 years, a variable insurer must be willing to loan 75% of the cash value, thus retaining 25% for their cushion Whole Life -Fixed DB -Fixed premium -Fixed and Guaranteed mortality charges -Fixed and Guaranteed Cash Value Return Rate -No investment options -No partial withdrawals -Taxed as Insurance -Regulated as insurance Universal Life -Adjustable DB -2 DB Options -Flexible Premium -Current, Guaranteed Maximum mortality charges -Current, Guaranteed Minimum Cash Value Return Rate -No Investment Options -Partial Withdrawals allowed -Taxed as Insurance -Regulated as Insurance Variable Life -GMDB plus Variable -Fixed Premium -Fixed and Guaranteed mortality charges -Variable, No Guarantee Cash Value Return Rate -Investment Options= YES -No Partial Withdrawals -Taxed as Insurance -Regulated as Insurance and Security Variable Universal Life - Variable and Adjustable DB -2 DB options -Flexible Premium -Current, Guaranteed Maximum mortality charges -Variable, No Guarantee Cash Value return rate -Investment Options= YES -Partial Withdrawals allowed -Taxed as Insurance -Regulated as Insurance and Security whole life and variable life policies with fixed premiums are universal life and variable universal life policies with flexible premiums are separate account Variable DB is based solely on the performance of the ____________ __________ 31 all fixed premium products have a ____ day grace period Guaranteed Minimum Death Benefit (GMDB) and Variable Death Benefit Fixed premium variable life DB options are: Variable Death Benefit ONLY Flexible premium variable universal life DB options are: Policy Loans Available for any reason up to full cash value @ fixed (max 8% interest rate) OR variable interest rate; loan $ + interest deducted from death benefit @ death. Partial Withdrawal Permanent deduction of the cash value and cannot be reversed Separate Account An investment pool funded by contributions to variable contracts, including variable annuities and variable life insurance. These assets are kept separate from the insurance company's general account -most closely resembles a family of mutual funds -a group of managed investment portfolios Requirements to Sell Variable Products -Series 6 or 7 securities license, registered representative -delivery of prospectus -pass "suitability" test General Account where the net premiums received by an insurer are accumulated and invested, from which the benefits if policies are paid out in response to claims conservative, defensive reserve requirements mandated by state law require that life insurers maintain a substantial proportion of their general account in _______________ or even _________________ investments aka high-grade corporate bonds and commercial real estate build it or rent it separate account is created one of two ways ________ ___ or ______ ____ **neither method of obtaining a separate account predicts better performance than the other open end investment company method also called the "direct method", involves the insurer building a separate account substantially out of its own internal assets unitrust method also called the "indirect method", simply requires the insurer to contract with an existing commercial investment company which will, in turn, create and manage the desired portfolios and overall separate account The Insurance Commissioner in the state of domicile Who has the final decision-making authority over changes to separate account structure or investment policy? Variable Life Insurance a fixed-premium policy in which the death benefit and cash values vary according to the investment experience of a separate account maintained by the insurer -New York Life actuarial formula to help calculate Net Investment ROR in the separate account Variable Annuity Annuity that has a varying rate of return based on the mutual funds in which one has invested Assumed Interest Rate (AIR) is an arbitrary rate of return set by the insurer for any separate account they establish. It is usually a low rate, perhaps around 2%, and it plays the role of an "artificial zero" for certain variable product values AIR for Variable Life Insurance applies to the variable death benefit, but not to the variable cash value -So any separate account investment return above zero would increase the variable policy cash value, but only a separate account return ABOVE the AIR would increase the variable policy DB AIR for Variable Annuities applies to the variable annuity unit value and any payouts, but not to the variable accumulation value -therefore, any separate account investment return above zero would increase the variable accumulation unit values, but only separate account returns above the AIR would increase the variable annuity unit values and payments Net Investment Return the investment return experienced by the variable life or variable annuity contract owner is called the ___ ___________ ________ -The separate account receives the gross investment return from the performance of the held assets (stocks and bonds) The Refund Provision allows the owner to refuse the variable policy for a period of up to 24 months from the date of purchase and receive the policy surrender value plus any sales charges above 30% of the first year premiums plus any sales charges above 10% of the second year premiums Variable Life Free Look Period -10 days of delivery (NAIC) -45 days of application/purchase date (SEC) Lost Opportunity Cost is the cost incurred when the loan collateral held by the insurer in the general account earns a nominal guaranteed interest rate rather than what it would have earned had it stayed in the separate account portfolios of the policyowner -aka "indirect cost of borrowing" -forgoing of higher earnings that might have occurred in the separate account underwriting In _______________ the insurer sets the standards they will use to qualify the applicants for coverage. -Accordingly, when balancing the liability created by the contract against the profitability it offers, the insurer may choose to use different underwriting standards for different types of policies. open-ended liability the added risk on a variable life insurance policy (the chance that the initial face amount of insurance purchased may be significantly exceeded by the variable DB created by the market performance of the separate account) is referred to as _______- ________ _________ Net Investment Return The investment return return experienced by the variable life or variable annuity contract owner is called the ____ _____________ ________ -The separate account receives the gross investment return from the performance of the held assets (stocks and bonds) refund provision allows the owner to refuse the variable policy for a period of up to 24 months from the date of purchase and receive the policy surrender value plus any sales charges above 30% of the first year premiums plus any sales charges above 10%of the second year premiums general account when a policyowner executes a policy loan they are actually borrowing from the __________ account of the insurer using their separate account portfolio values as collateral for the loan (lost) opportunity cost is the cost incurred when the loan collateral held by the insurer in the general account earns a nominal guaranteed interest rate rather than what it would have earned had it stayed in the separate account portfolios of the policy owner -aka "indirect cost of borrowing" Variable Products Taxes -Premiums paid w/ after tax dollars (VL and VA) -DB is paid to beneficiary income tax free (VL and VA) -All cash value life insurance policies defer any taxes on growth of cash value inside the policies (VL) -Partial withdrawals are FIFO (basis first) (VL) -If a policy surrender is made, taxes are only due on the balance above the basis (VL) -With all annuities, income taxes are similarly deferred during the accumulation period (VA) -Annuities use a LIFO approach, so the gain is required to be withdrawn and taxed before the basis can be taken in many cases (GAINS FIRST) (VA) -1035 Exchange 1035 exchange allows a life insurance policy to be exchanged for another policy or annuity, and for an annuity to be exchanged for another annuity, while continuing to defer any taxable gain Securities Act of 1933 The first major law regarding the sale of securities. It required that companies register their securities sold to the public with the SEC and that investment bankers must provide full and accurate information related to new securities issues to potential investors. **Provide investors with PROSPECTUS Securities Exchange Act of 1934 A federal law dealing with securities regulation that established the Securities and Exchange Commission to regulate and oversee the securities industry. Investment Company Act of 1940 Congressional legislation regulating companies that invest and reinvest in securities. The act requires an investment company engaged in interstate commerce to register with the SEC. Combination Annuity -receive the advantages of both fixed and variable annuities -combines several types of management structures to create an even more individualized retirement savings program -contribute to both the general and separate accounts Fixed Annuity are managed entirely by the insurer, and the assets are held in the insurer's general account -Guaranteed minimum rate of return -Insurer bears the entire investment risk -fixed and level income for the life of the annuitant -downside of fixed annuities is inability to overcome inflation Indexed Annuity are considered "fixed" and do not require securities registration for the agent selling them (just a life insurance license) because they always have guaranteed minimum rate of return (sometimes 0%) that insures the client's principal investment is not at risk -tied to some market index, usually the S&P 500 -client has the opportunity to participate in equity market returns while be protected from a down- market loss by the minimum guarantee Participation Rate is the percentage of the index rate of return that the client will be credited with Ex: if the index made 8%, and the participation rate set in the contract was 80%, the client would be credited with 6.4% (80% x 8%) Cap Rate is a maximum rate of return the contract will pay, and when higher returns are registered by the index the insurer keeps those floor rate is the minimum rate that the insurer guarantees to pay on the contract no matter what occurs in the market -often is 0%, meaning that in a down market the client will not gain, but the client's current balance would be preserved accumulation period The time over which the annuitant makes payments or investments in an annuity, and when those payments earn interest tax deferred. Accumulation Units - Typically is a function of the after-tax interest earned, dividends received and capital gains (or losses) incurred, minus investment expenses associated with the insurer equity investment portfolio supporting the annuity Annuity Units At 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. -Once converted to annuity units the number of units will NEVER change but the value of these units will change daily accordingly to investment performance of the separate account Individual Annuity are the most common and they are characterized by a single annuitant who creates the contract, makes the premium payments, and receives the distributions going forward -the term "individual" is not included on the title on sales literature -aka "deferred, single-premium, variable annuity" Joint Life Annuity Payments continue to two annuitants for only as long as both live. On the death of either one, payments stop. Joint and Survivor Annuity An annuity that makes payments to two or more annuitants throughout their lifetimes. Payments normally reduce at the death of each annuitant and stop altogether upon the death of the last annuitant. -most popular for married couples -Ex: Joint and 100% survivor, Joint and 75% survivor, Joint and 50% survivor single premium annuity is funded entirely with one. single payment -usually used by clients who are at retirement age and selling a house, a business, or other assets, and who wish to convert the sales proceeds into a secure stream of retirement income for the remainder of their life Flexible Premium Annuity Allows the annuity owner to vary the premium payments; there is no requirement that the owner must deposit a specified amount each year -insurer will set up a minimum initial deposit requirement, such as $500, to open the annuit, but subsequently the annuitant may make truly flexible premium payments however and whenever they wish periodic premium payments Continuous premiums paid into the contract. The most common example of a periodic premium is a flexible premium. -bank account draft into a policy -can always be stopped/ cancelled at any point by the annuitant at this point it will simply revert to flexible premium annuity Immediate Annuity an annuity in which the annuitant begins receiving monthly benefits immediately -ONLY available on single-premium payments Deferred Annuity An annuity that starts sometime in the future, some date beyond one year Life Only Annuity Settlement Option: The annuitant will continue to receive payments for as long as they live. The contract will be completed when the annuitant dies, whether that event occurs soon or much later. -aka "life annuity" or " life income" -Produces the LARGET monthly income guaranteed for life Life with Period Certain The insurer may offer several different time period under this option, but 10 years is the most common. Under this arrangement. the annuitant will receive payments for life, just as with the life only option. If they should die within the certain period (usually 10 years), however, the insurer guarantees to continue the annuity payments to a named beneficiary for the balance of the certain period. -the annuitant "pays" for this guarantee by a reduced monthly income Life with Refund insurer guarantees payments for life, and 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 -monthly income even further reduced than life with period certain Annuities Certain Distributions allow an annuitant to dictate EITHER the amount or the time period of the distribution, which will then continue until the annuity is exhausted or the annuitant dies -If the annuitant dies before the distribution is completed, payments may then be made to a named beneficiary. -Two types: Fixed Amount Option or Fixed Period Option accumulation death benefit basically a small insurance contract built into the annuity which says that the insurer, should the annuitant die during the accumulation period, guarantees to pay a named beneficiary the account value or the basis (sum of premiums paid), which ever is LARGER maximum expense and load guarantee it says that the insurer affirms that all expenses, loads, or other charges that may occur are disclosed in writing in the contract -insurers can choose to charge less than the amounts disclosed but NEVER more -with annuities there are never hidden or "surprise" charges that were not in the contract LIFO If lump sum, partial withdrawals, or annuity sertain are selected, then the tax calculation will be based on ___________________________ Exclusion Ratio method 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. Exclusion Ratio basis/ expected return= Product Applicability "job #1" in the suitability process where variable products are concerned diversification is a strategy that involves buying a variety of different investments as protection against one or several of an investor's choices doing badly Asset Allocation is a concept that combines the principle of diversification with consideration for client's goals, risk tolerance, and life cycle location Examples of Asset Allocation Portfolios: 1. Older clients: 10% growth, 20% diversified, 70% income 2. Younger clients: 70% growth, 20% diversified, 10% income Constant Ratio Allocation suggests that once a client has adopted a particular asset class allocation, if nothing substantial changes, then the model should be maintained -aka "re-balancing" the account to the original allocation percentages Dollar Cost Averaging when the same dollar amounts are invested in the same products periodically over time without regard to the unit price of the investment at any given time capital appreciation portfolio -aka growth portfolios -assets focused on appreciation which will typically be common stock -this type of portfolio will produce the greatest return over time, but which also has higher volatility -considered most appropriate for younger, higher net worth, more aggressive clients income portfolios -suggestive of a desire for interest income and capital preservation rather than growth -lower market returns, but has substantially less market risk -contains assets such as bonds and money market accounts -most appropriate for older, more conservative, and risk-averse investors diversified portfolios -contain a variety of both growth and income assets -aka "total return" portfolios -suitable for a wide variety of investors -"blended" nature 10% of Assets Rule this rule limits the purchase of assets into a separate account if the result will be more than 10% of the value of the separate account is invested in a single issue -diversification rule; it requires the investment advisor to have no fewer than 10 distinct investment positions in the separate account 10% of Stock Rule this rule dictates that a separate account may not hold more than 10%of the voting and outstanding stock of any single issuer -aka "don't threaten the directors rule" -No more than 10% of outstanding shares of one company 10-year conviction rule any person with a conviction during the preceding 10 years for at least a misdemeanor involving the mishandling of money or a felony conviction of any type whatsoever, is barred from being employed in a managerial capacity by a separate account 10- year Violation Rule any person who during the preceding 10 years has violated state insurance regulations, or state or federal securities regulations, in a manner involving deceit or misrepresentation, will be similarity barred from employment $10,000 bond rule -any person with direct access to the assets of the separate account will be required to post a security bond -amount of the bond is based on the assets under management in the separate account -minimum bond to be posted in any event is $10,000 Advisor Contract Rule -the employment contact for a separate account investment advisor must be inwriting and include a provision that the contract may be terminated at any time with 60-days written notice -further, the termination may not provide any severance or other settlement that would be an expense to the insurer, the investment company, or the separate account 100 Variable life owners earn 1 vote for each $______ of cash value in their VL poliy unit variable annuity owners ear 1 vote per ________ that they accumulate in their variable annuity annually separate account investors must receive reports, at least ___________, detailing the performance of the separate account as a whole, including all charges incurred, and any changes to the investment philosophy or policy semi-annually investors must receive at report, at least _________ ___________; a report on their own portfolios daily separate account valuations occur __________ (just like MFs) Misrepresentation deliberately deceiving defamation is the oral or written communication of a false statement about another that unjustly harms their reputation Controlled Business - Pertains to taking out life insurance or annuity contracts covering the agent or family members -may not exceed 25% of the premium volume written by an agent in the course of any 12-month period Rebating and Illegal Inducements the practice of giving an individual a premium reduction or some other financial advantage not stated in the policy as an inducement to purchase the policy 31 days scheduled premium grace period 61 days flexible (universal) grace period Reinstatement Provision a provision that the policy will be reinstated at any time within two years from the date of default upon the written application of the insured and evidence of insurability Policy Exchange Provision provision that at any time during the first 18 months of the variable life policy, soo long as premiums are duly paid, the owner may exchange the policy for permanent fixed benefit life insurance on the life of the insured for the same initial amount of insurance as the VL policy -must be a comparable plan Entire Contract Provision found at the beginning of the policy, saying that the policy cannot refer to any outside documents as being part of the contract and prohibiting the insurer from making any changes to the policy after it has been issued. (can only make good changes not bad) affiliate if an insurer means any person, directly or indirectly, controlling, controlled by, or under common control with such insurer; any person who regularly furnishes investment advice to such insurer with respect to its variable life insurance separate accounts for which a specific fee or commission is charged -any director, officer, partner, or employee of nay such insurer -or any person providing investment advice or any member of the immediate family of such person Assumed Interest Rate (AIR) The net rate of investment return that must be credited to a variable life insurance policy to ensure that at all times the variable death benefit equals the amount of the death benefit. The AIR forms the basis for projecting payments, but it is not guaranteed. annually variable life death benefit must be recalculated __________ monthly variable life cash values must be calculated at least _______ statutory authority legislation that grants someone authority to perform an act that could create a nuisance (enforce georgia insurance code) the policy shall include any policy, plan certificate, contract, agreement, statement of coverage, rider or endorsement which provides for life insurance or annuity benefits advertisement shall be verbal, printed, written, or other material or communication of any type from any source which is designed to create public interest in life insurance, annuities or in an insurer, agent or counselor, or induces or tends to induce the public purchase, increase, modify, reinstate, surrender or retain a policy 4 years for what period must an insurer retain all insurance advertising used in this state for inspection by the department? conservation means any attempt by the existing insurer, its agent or a counselor to discourage a policyowner from the replacement of existing life insurance replacement means any transaction in which new life insurance or an annuity has been or is to be purchased, and the proposing agent or counselor or the proposing insurer is no agent or counselor is involved, knows or should know that because of such transaction, existing life insurance has been or is to be: -lapsed, forfeited, surrendered or otherwise terminated; -changed o reduced paid-up or extended term insurance; or -otherwise reduced in value by the use of nonforfeiture benefits, policy loans, or other policy values replacement notice the ___________ ________ should be signed by both the applicant and the agent and left with the applicant