Online Annuity Suitability

Online Annuity Suitability
C.E. Solutions Tracy Young, CLU, HIA, ALHC CE4U(2348)

Annuity Suitability Review and study this course at your leisure.
Once the course is completed, enter the exam through the ClassMarker link at the end of the exam. You must receive a score of 70% or better to pass. You may retake the test at no additional cost as needed. The Insurance Department requires that all exams be taken in the presence of an approved disinterested 3rd party monitor. Course Certificate will be faxed and sent electronically to the insurance department when notification of a passing score and an affidavit signed by the person monitoring the test is received.

C.E. Solutions The material presented in this course is for educational and informational purposes only. It should not be used to provide guidance to your customers or clients in lieu of competent, certified, legal advice. The parties involved in the development of this course shall not be liable for any inappropriate use of this information beyond the purpose stated above. As a student, you should understand that it is your responsibility to adhere to the laws and regulations pertaining to any aspect of this course and the materials presented within.

Outline Interest Earnings Crediting Methodology - 30 minutes
Fixed Annuities Indexed Annuities Variable Annuities Annuity Taxation of qualified & non-qualified annuities – min. Suitability (appropriate sales practices, replacement and disclosure requirements) – min. Tips & Definitions – 15 min. The Purpose of Training – 5 min. What is an Annuity? – 10 min. What are the benefits? – 10 min. Annuity Descriptions – 30 min. Parties to an Annuity Contract – min. Costs with Annuities – 10 min. Surrender Charges – 10 min. Annuity Contract Terms – min.

Purpose of the training
+ 4 hours Life/Health C.E. The purpose of this Policy and Procedure adopted by the Kansas commissioner of insurance is to require insurers to establish a system to supervise recommendations and to set forth standards and procedures for recommendations to consumers that result in transactions involving annuity products so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed. This creates consistency with Financial Industry Regulatory Authority (FINRA) suitability standards.

Annuity Suitability Training Requirements
The Kansas Insurance Department has adopted an annuity training requirement which requires producers who represent annuity products to complete the following two training components. One-time four-hour continuing education (CE) requirement by an approved vendor. Effective 7/1/13 (if already licensed, you have until 11/30/13 to complete). Company-Sponsored, Product-specific ongoing training sponsored by companies offering Annuities. Insurance Companies are responsible for supervising & monitoring the marketing and sale of annuities. ** This Policy and Procedure shall apply to any recommendation to purchase, exchange or replace an annuity made to a consumer by an insurance producer

… Training Requirements
The training required under this subsection shall include information on the following topics: (a) The types of annuities and various classifications of annuities; (b) Identification of the parties to an annuity; (c) How fixed, variable and indexed annuity contract provisions affect consumers; (d) The application of income taxation of qualified and non-qualified annuities; (e) The primary uses of annuities; and (f) Appropriate sales practices, replacement and disclosure requirements.

What are the training requirements to the Annuity Suitability Requirements in Kansas & now Missouri?
A one-time 4 hour approved course by an approved vendor. Company-Sponsored, Product-specific ongoing training sponsored by companies offering Annuities. A one-time 4 hour approved course by an approved vendor AND Company-Sponsored, Product-specific ongoing training sponsored by companies offering Annuities. 4 hours of training on annuities at every renewal.

What are the training requirements to the Annuity Suitability Requirements in Kansas & now Missouri?
A one-time 4 hour approved course by an approved vendor AND Company-Sponsored, Product- specific ongoing training sponsored by companies offering Annuities.

Exemptions to Annuity Training
Direct Response Solicitations Contracts used to fund: An employee pension or welfare benefit plan that is covered by the ERISA. A plan established or maintained by an employer… 401(a), 401(k), 403(b), 408(k) or 408(p) of the IRC A government or church plan … (section 414 of IRC), gov’t or church welfare benefit plan or deferred compensation plan of state or local gov’t or tax exempt organization (section 457 of IRC) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor Settlements (or assumption of liabilities) associated with personal injury litigation or any dispute or claim resolution process Formal prepaid funeral contracts.

Exceptions to Annuity training requirements include all of the following EXCEPT:
Agents who sell fewer than 5 Annuities a year. Direct Response Solicitors. An employee pension or welfare benefit plan that is covered by the ERISA. A government or church plan ... Formal prepaid funeral contracts.

Exceptions to Annuity training requirements include all of the following EXCEPT:
Agents who sell fewer than 5 Annuities a year. (they are NOT exempt from the training)

Match the Description to the Definition
Annuity Continuing Education Credit FINRA Insurer Insurance Producer Recommendation Replacement Continuing Education Provider an insurance product under State law that is individually solicited, whether the product is classified as an individual or group a company, including a fraternal benefit society, required to be licensed under the laws of this state to provide insurance products, including annuities a transaction in which a new policy is to be purchased, and it is known or should be known to the proposing producer that an existing policy has been or is to be: Lapsed, forfeited, surrendered ... or otherwise terminated. means one C.E. education credit as defined by state law advice provided by an insurance producer, or an insurer where no producer is involved, to an individual consumer that results in a purchase a person required to be licensed under the laws of this state to sell, solicit or negotiate insurance, including annuities. Also includes the terms “insurance agent” or “agent” an individual or entity that is approved to offer continuing education courses the Financial Industry Regulatory Authority or a succeeding agency

Match the Description to the Definition
Answers an insurance product under State law that is individually solicited, whether the product is classified as an individual or group a company, including a fraternal benefit society, required to be licensed under the laws of this state to provide insurance products, including annuities a transaction in which a new policy is to be purchased, and it is known or should be known to the proposing producer that an existing policy has been or is to be: Lapsed, forfeited, surrendered ... or otherwise terminated. means one C.E. education credit as defined by state law advice provided by an insurance producer, or an insurer where no producer is involved, to an individual consumer that results in a purchase a person required to be licensed under the laws of this state to sell, solicit or negotiate insurance, including annuities. Also includes the terms “insurance agent” or “agent” an individual or entity that is approved to offer continuing education courses the Financial Industry Regulatory Authority or a succeeding agency A. = Annuity B. = Insurer C. = Replacement D. = Continuing Education Credit E. = Recommendation F. = Insurance Producer G. = Continuing Education Provider H. = FINRA

Replacement “Replacement” means a transaction in which a new policy or contract is to be purchased, and it is known or should be known to the proposing producer (or to the proposing insurer if there is no producer) that by reason of the transaction, an existing policy or contract has been or is to be: Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated; Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values; Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid; Reissued with any reduction in cash value; or Used in a financed purchase.

What is an annuity? Insurance Contract issued by an Insurance Company.
Premium(s) paid under the contract accumulate interest or earnings on a tax-deferred basis. A systematic retirement income payment, the size and duration of which depends on the pay- out option selected, premium(s) paid & earnings.

Definition: annuity (n.) a specified income payable at stated intervals for a fixed or a contingent period, often for the recipient's life, in consideration of a stipulated premium paid either in prior installment payments or in a single payment.

Did you know? The average American spends 18 years in retirement and less than half of Americans have put aside money specifically for retirement. How could an Annuity help? Sock away cash and defer paying taxes. Withdrawal Benefits Free Withdrawal Benefits (usually 10% per year) Death Benefits

What are the benefits of an Annuity?
Sock away cash. Defer paying taxes. Retirement income benefit. Free withdrawal benefits (usually 10% a year). Withdrawal benefits. Death benefits. All of the above. None of the above.

What are the benefits of an Annuity?
Sock away cash. Defer paying taxes. Retirement income benefit. Free withdrawal benefits (usually 10% a year). Withdrawal benefits. Death benefits. All of the above is correct!

TWO BASIC TYPES OF ANNUITIES
Immediate annuity –– income stream begins immediately upon payment of the first premium Deferred annuity –– income stream begins later (or not at all, at the owner’s discretion) THREE BASIC TYPES OF DEFERRED ANNUITIES: Fixed annuities Fixed index annuities (sometimes called “equity index annuities”) Variable annuities

ANNUITY DESCRIPTIONS How Premiums Are Paid
Single Premium contracts allow only one premium to be paid, or allow premiums to be paid for only 1 year from time of purchase. SPDA (Single Premium Deferred Annuity) Guarantees interest rate for a period of time Compares to a CD, but not taxable until withdrawn Flexible Premium contracts allow owner to add additional premiums to the contract during the year.

When do you use Annuities?
As you reach retirement you need to start thinking about what you will live on when you no longer receive an income from work. Anyone who has built up a pension can take up to 25% as a tax-free lump sum. If you have a private pension fund or a work pension which is not a final salary scheme, you will need to use the rest of your pot to provide yourself with an income. One way to do this is by buying an annuity.

Using Annuities … continued
How much you get depends on a staggering number of factors: the size of your pension pot your age occupation any illnesses whether you've smoked (or still smoke) whether you are taking out a single or joint policy, interest rates inflation the demand for government bonds Buying an annuity can be a gamble: if you live a long, healthy life you can be benefit greatly; if you die a year later, all that saved money can disappear into the pension company's pocket.

Digging in deeper … types of Annuities
Immediate annuity Guarantees immediate fixed income, possibly with period certain. Must sign over all money and not touch it, except for monthly income. Higher monthly income/ less taxes taken out because part of it is principal. Life pays for Life only. Life + 5 or + 10, pays for Life … and if you die before 5 or 10 years, a beneficiary will receive payment. GOAL for SPIA Those looking for a guaranteed monthly income with some tax benefits; Those who have no beneficiaries to whom to leave their money; Those who need right now a little higher income than just a straight interest bearing investment. Those who want to take advantage of a high interest rate environment. The perfect time to have purchased an immediate annuity, for example, with respect to interest rates, would have been in the eighties, when interest rates were high, not in the late nineties, when interest rates are relatively low. Single premium deferred annuity Taxes are postponed until money is withdrawn. Interest rate guaranteed (1-7 years). Goal for SPDA - let their money grow risk free without paying income taxes, and being able to use the investment to generate an income later on in life.

What does an Immediate Annuity +10 do for the annuitant?
The annuitant pays a lump sum immediately, but then cannot collect any benefits for 10 years. The Annuitant receives benefits for their lifetime, and then a beneficiary receives another 10 years of benefits. Investment in the annuity lasts 10 years, then it starts paying. Guaranteed immediate fixed income + continued benefits to the beneficiary if the annuitant dies within 10 months. Guaranteed immediate fixed income + continued benefits to the beneficiary if the annuitant dies (a total of 10 years).

What does an Immediate Annuity +10 do for the annuitant?
Guaranteed immediate fixed income + continued benefits to the beneficiary if the annuitant dies (a total of 10 years).

Variable annuity - the money is used most often to purchase different mutual funds within the insurance contract. A variable annuity can have many funds for you to choose from, or just a few, depending on the company. Still has tax deferral…(Even if you buy & sell a different mutual fund every day, you will not have to pay taxes on your gains until you actually withdraw funds from the annuity). Benefit … invest in a mutual fund within a variable annuity, you could sell it and… as long as you did not withdraw any money … still not pay any taxes until you withdraw the money. Another advantage is that in variable annuities, even if you invested 100% of your money in a risky mutual fund within the variable annuity, you are guaranteed that in the end you will never get back less than what you originally deposited or whatever the current value of the account is, whichever is more. In a regular mutual fund not held within a variable annuity, there is no such guarantee. GOAL for Variable – Someone who has no beneficiary to whom to leave their money; Someone who likes to buy and sell mutual funds often; Someone who is in a very high tax bracket now but plans to be in a much lower tax bracket when they retire.

Index Annuity mutual funds that simply tracked the indexes, known as index funds, such as the Standard and Poor's 500 index. The Standard and Poor's 500 index is made up of 500 stocks that are actually more a gauge of what the entire stock market is doing than the traditional Dow Jones Industrial Average that we hear about every day. The Dow Jones Average is calculated from only 30 stocks, realistically not an overview. To participate in this index trend, the insurance companies created an index annuity. The surrender period on an index annuity is usually about 7 to 10 years. The index annuity tracks an index, and your return on your money will usually be a percentage of what that particular index did for your corresponding investment year. For those who do not want to take any risk at all this index annuity might be better. When you invest in a regular index mutual fund, you get to participate 100% in all the upside--and any downward swerves as well. GOAL FOR INDEX - The index annuity does not credit you with 100% of the return. It is set in reserve to protect you from the downside. It guarantees you that, after your surrender period is over, you will get at least 110% of what you originally put in.

Tax-sheltered annuity. Many school teachers and hospital workers are offered in their retirement plan. Money that is invested in a TSA is done so on a monthly basis, unlike most other annuities, where the money is deposited in a lump sum. Also with a TSA, all the money is qualified money, or money that has not yet had the taxes paid on it.

Other Types of Annuities
Level Annuity A set income paid out at an agreed frequency (monthly, quarterly, half- yearly or yearly). It will not go up or down, so inflation will erode your spending power every year. At first it will generally offer a better rate than an increasing annuity. Percentage Increasing Annuity Will rise by a fixed percentage, usually 3% or 5% a year, keeping your income up with inflation. The COST: you will get around 30% to 50% less a month at the outset, depending on the rate of increase chosen RPI-Linked Annuity Monthly payout will rise in line with inflation (Retail Price Index) and protect you from losing your purchasing power. COST: – usually between 40% and 50%. There is also a chance you could end up with less if retail prices begin to fall.

Other Types of Annuities
Enhanced/Impaired Annuity … If the company providing your annuity thinks it will only have to pay you for a few years, it may offer you a higher income. These annuities are available if you've suffered or are suffering from one of a range of illnesses that may shorten your life expectancy (high blood pressure, diabetes, cancer, a heart attack, Parkinson's disease or MS) The insurer will usually raise your income, sometimes by as much as 30%. Joint Life Annuity Passing on part of your defined-contribution pension (normally 50%, 66.66% or even 100%) to a partner when you die may be attractive, but the cost is a lower initial income.

ANNUITY DESCRIPTIONS How Interest is Determined Fixed Annuities
Fixed Rate- Insurance Company declares an interest rate to be credited each year Indexed Rate- Formula specified in the contract that determines interest rate based on an index like S&P 500, Dow Jones, Russell 2000. Variable Annuities - Interest is determined by the growth in the underlying separate accounts. Growth may be Positive or Negative.

ANNUITY DESCRIPTIONS Tax Status
Qualified – Premium(s) paid into the annuity contract are tax deductible [401(k), 403(b), 408(b) IRA]. Buying an annuity with pre-tax money. Non-qualified – Premium(s) paid into the annuity contract are not tax deductible. Buying an annuity with money you have already paid taxes on.

Which of the following statements are correct about the Tax Status of Annuities?
Premiums paid into a Qualified Annuity are tax deductible. When buying a Qualified Annuity, pre-tax money is used. Non-Qualified Annuities are bought with money that has already been taxed. Non-Qualified Annuity premiums are NOT tax deductible. All of the above. None of the above.

Which of the following statements are correct about the Tax Status of Annuities?
Premiums paid into a Qualified Annuity are tax deductible. When buying a Qualified Annuity, pre- tax money is used. Non-Qualified Annuities are bought with money that has already been taxed. Non-Qualified Annuity premiums are NOT tax deductible. All of the above are correct.

ANNUITY DESCRIPTIONS Qualified Example Non-Qualified Example Salary = $100,000 Annuity Premiums = $10,000 Taxable Income = $90,000 Tax Rate = 25% Taxes = $22,500 After Tax Income = $77,500 Net Income = $67,500 Salary = $100,000 Annuity Premiums = $10,000 Taxable Income = $100,000 Tax Rate = 25% Taxes = $25,000 After Tax Income = $75,000 Net Income = $65,000

Which of the following statements is true regarding Qualified Annuities?
100% of the distributions or benefit payments are subject to income tax. Minimum distributions are required to begin at age 70 ½. Distributions prior to age 59½ are subject to a 10% penalty tax. All of the above. None of the above

Which of the following statements is true regarding Qualified Annuities?
100% of the distributions or benefit payments are subject to income tax. Minimum distributions are required to begin at age 70 ½. Distributions prior to age 59½ are subject to a 10% penalty tax. All of the above is true.

WHERE IS AN ANNUITY PURCHASED?
Annuities may be purchased from an Insurance company through: Licensed Insurance Agent Internet Bank Direct Mail

PARTIES TO THE ANNUITY CONTRACT
Insurance Company Owner of Contract. Issues the Annuity Contract. Controls all rights under the Contract. Invests the Premium(s). Pays Premium(s). Credits Interest Earnings. Names the Annuitant. Pays the Benefits/Withdrawals. Names the Beneficiary. Owner and Annuitant can be same. Keeps Account of Contract Values. Joint Owners Allowed.

PARTIES TO THE ANNUITY CONTRACT
Annuitant Beneficiary(s) Person insured under the Contract. Receives death benefit on death of Annuitant or Death of Owner. Age and sex determines Income Benefits. There may be multiple beneficiaries, (i.e.. children, etc.). Person to whom Income Benefits paid.

Which of the following is true regarding the parties to an Annuity Contract?
The Insurance Company keeps account of contract values. The Owner pays the premium and has all the control. The Annuitant's age and sex determine income benefits. The beneficiary receives death benefit upon death of Annuitant. All of the above. None of the above.

Which of the following is true regarding the parties to an Annuity Contract?
The Insurance Company keeps account of contract values. The Owner pays the premium and has all the control. The Annuitant's age and sex determine income benefits. The beneficiary receives death benefit upon death of Annuitant. All of the above are correct.

WHAT ARE THE COSTS OF PURCHASING AN ANNUITY?
Insurance Company Expenses Include: Agent Commission Immediate Annuities – 1% to 5% Deferred Fixed Annuities – 5% to 15% Deferred Variable Annuities – 5% to 8% Issue Expense % Administration Expense – 1.50% Investment Expense – 1.20% Risk Based Capital Expense – 4.00% Taxes (State & Federal) – 1.00% Profit (After Tax) – 2.00% Total Other Company Expenses 10.70%

Typical Annuity Expenses

HOW ARE THE COSTS OF AN ANNUITY PAID FOR ?
Insurance Company recovers expenses by charging any or all of the following: Interest Rate Spread Contract Charges Surrender Charges

Interest Rate Spread Difference between the rate of interest the company earns on investments and the interest rate credited on the annuity contract. Example: *Company earns 8.50% on the investments. *Credits 5.75% on the annuity premiums. Spread = 2.75% (8.50% %)

Contract Charges Potential one- time or periodic flat dollar charges.
Example: $ 50 issue fee $ annual administrative (“Maintenance”) fee Mortality fees of 1 to 1.35% of your account (protection for the insurer in case you live a long time), Investment advisory fees of 0.3% to 1% of the assets in the annuity’s portfolios.

Surrender Charges (Withdrawal Charges)
Percentage amounts applied to any withdrawals from the annuity contract. Charges apply for a fixed number of contract years and decrease over time. Charges are subject to State Law.

Which of the following is a true regarding withdrawals from Annuities?
The contract may have a minimum amount that may be withdrawn. The number of withdrawals in a calendar year may be limited. A minimum amount must remain in the account. Free withdrawals are without a surrender charge. All of the above. None of the above.

Which of the following is a true regarding withdrawals from Annuities?
The contract may have a minimum amount that may be withdrawn. The number of withdrawals in a calendar year may be limited. A minimum amount must remain in the account. Free withdrawals are without a surrender charge. All of the above are correct.

Surrender Charge Example
Contract Year Surrender Charge Percent 1 12% 2 11% 3 10% 4 9% 5 8% 6 7% 7 6% 8 5% 9 4% 10 2% 11+ 0% Policy Year = 5 Single Premium = $100,000.00 Account Value = $129,461.86 Surrender Charge % = 8.0% Calculate the Surrender Charge (AV x SC)= $129,461.86x.08 Surrender Charge = $10,356.95 Calculate the Cash Surr. Value (AV – SC) = $129, $10,356.95 Cash Surr. Value = $119,104.91

Free Withdrawal Calculation
Calculating the Free Withdrawal Amount Interest = $ 29,461 [$ 129,461 - $ 100,000] 10% of AV = $ 12, [$ 129,461 x .10 = $12,946] Free Withdrawal Amount = $ 12,946 Policy Year = 5 Single Premium = $100,000.00 Account Value = $129,461.86 Surrender Charge % = 8.0% Free Withdrawal = Interest up to 10% AV Calculate the Free Withdrawal Amount Calculate the Cash Surrender Value

Calculating the Cash Surrender Value
Account Value $ 129, Less Free Withdrawal -$ 12, Amount Subject to SC $ 116, Times SC % X .08 = Surrender Charge $ 9, Cash Surrender Value $ 120,140.61

HOW IS THE INTEREST RATE SPREAD DETERMINED ?
(Total Expenses are amortized over the expected life of the annuity contract). Example: Commissions % Other Company Expenses % Total Company Expenses % Total Company Expenses = 20.70% Actuarial Amortization Factor = 7.515 Spread = 20.70% / 7.515 Spread = 2.75%

Are Surrender Charges Really Necessary ?
Example: Commissions % Issue Expenses % Total Up Front Expenses % Spread in First Year % Short-fall % If the annuity contract owner surrenders or terminates the contract prior to the end of the 7.5 year period, the company has not received enough spread to cover the upfront costs.

ANNUITY CONTRACT TERMS
Contract Date Effective (Issue) Date Annuity Date The date benefit payments are scheduled to begin (Maturity Date) Right to Change the Annuity Date Some allow a change in the date prior to benefits being paid, some do not.

Free Look Period The period of time you have to examine the Contract and return it without losing any premium paid. For Variable Annuities, you will get any premium allocated to a fixed account returned plus the value of the Separate Accts. Account Value The amount of money in Annuity Contract The sum of Premium(s) plus Interest earnings less any withdrawals and contract charges. Also called Accumulated (or Accumulation) Value, or Cash Value

Cash Surrender Value The value you will receive if you surrender or terminate your contract prior to the Annuity Date. Equal to the Account Value less any Surrender Charge applied at the time of surrender. Can never be less than the Guaranteed Minimum Values. (This is mandated by State Law). Equal to the Account Value after the end of the Surrender Charge Period.

Withdrawals Free Withdrawals Prior to the Annuity Date. Amounts that may be withdrawn from the annuity contract without surrender charge. Minimum amount that may be withdrawn. Limited the number of withdrawals in a calendar or contract year. May be limited in amount, number and timing. Minimum amount must remain in the Account. Common Free Withdrawal Provisions Amount that can be withdrawn is the Account Value. Interest Only. Any amount up to 10% of Account Value. Interest only up to 10% of Account Value. 10% of Premium each Contract Year.

Death Benefit Paid on death of Annuitant or Owner. Equal to the Account Value or the Cash Surrender Value. Beneficiary decides … Paid in lump sum, or Paid out over a period of years. Minimum Death Benefit = Cash Surrender Value (State Law).

Which of the following is a true regarding the Death Benefit?
The beneficiary can choose to take it as a lump sum, but not paid out over a period of years. The beneficiary can choose to take it paid out over a period of years, but not as a lump sum. The Owner of the Annuity chooses how the Death Benefit is paid. The beneficiary can choose to take it as a lump sum, OR paid out over a period of years.

Which of the following is a true regarding the Death Benefit?
The beneficiary can choose to take it as a lump sum, OR paid out over a period of years.

Death Of Owner and IRC Section 72(s) Owner dies prior to Annuity Date, Owner’s entire interest in contract must be distributed within 5 years of the Owner’s death. Owner’s interest = Cash Surrender Value if death benefit paid on Annuitant’s death. Owner’s interest = Death Benefit if death benefit paid on Owner’s death.

Exceptions to Section 72(s) Death of Owner: If the owner has named spouse as beneficiary, spouse becomes owner of Annuity Contract and no distribution required. Distribution is required on death of spouse, even if spouse remarries. If the Owner has named a non-spousal beneficiary, that beneficiary may take the distribution over a period of time not to exceed the life expectancy of the beneficiary. Payments must begin not later than one (1) year after the Owner’s death.

Which of the following are exceptions to the Section 72(s) Death of the Owner rules?
If the owner has named spouse as beneficiary, spouse becomes owner of Annuity Contract and no distribution required. Distribution is required on death of spouse, even if spouse remarries. If the Owner has named a non-spousal beneficiary, that beneficiary may take the distribution over a period of time not to exceed the life expectancy of the beneficiary. Payments must begin not later than one (1) year after the Owner's death. All of the above. None of the above.

Which of the following are exceptions to the Section 72(s) Death of the Owner rules?
If the owner has named spouse as beneficiary, spouse becomes owner of Annuity Contract and no distribution required. Distribution is required on death of spouse, even if spouse remarries. If the Owner has named a non-spousal beneficiary, that beneficiary may take the distribution over a period of time not to exceed the life expectancy of the beneficiary. Payments must begin not later than one (1) year after the Owner's death. All of the above is correct.

Annual Statements Owner receives statement at least once per year. Shows values of the contract.

Pay-Out Options (Settlement Options): Owner must elect a pay-out option prior to the annuitant’s death and prior to the annuity date. Owner may designate a payee. Options are described in the Annuity Contract. Once retirement benefits start under a pay-out option, the pay-out option cannot be changed. A method of distribution of retirement income benefits. Option selected will determine the amount of the retirement benefit and length of time benefit will be paid. Deferred annuity becomes an immediate annuity under a Pay-Out option.

Pay-Out Options The Annuity Contract guarantees minimum pay-out factors. Payment Mode may be selected (monthly, quarterly, semi-annually, annually). On Annuity Date, Company calculates benefit payment. Factors used cannot be less than guaranteed minimum pay-out factors stated in the Contract. Benefit payment is guaranteed and cannot change (unless variable pay-out).

Common Pay-Out Options Life Income Life Income with Period Certain Joint and Last Survivor Joint and Last Survivor with Period Certain Fixed Period Certain

Which of the following is true regarding Annuity Payout Options?
The option selected will determine the amount of the retirement benefit and length of time benefit will be paid. A deferred annuity becomes an immediate annuity under a Pay-Out option. The owner must elect a pay-out option prior to the annuitant's death and prior to the annuity date. Once retirement benefits start under a pay-out option, the pay-out option cannot be changed. All of the above. None of the above.

Which of the following is true regarding Annuity Payout Options?
The option selected will determine the amount of the retirement benefit and length of time benefit will be paid. A deferred annuity becomes an immediate annuity under a Pay-Out option. The owner must elect a pay-out option prior to the annuitant's death and prior to the annuity date. Once retirement benefits start under a pay- out option, the pay-out option cannot be changed. All of the above is correct.

Life Income With Period Certain Payee will receive retirement income payments for the longer of (a) and (b) where: (a) Annuitant’s lifetime (b) Period Certain (5, 10, 15, 20 years) Life Income Payee will receive retirement income payments for as long as the Annuitant is alive. Payments stop when the Annuitant dies.

Which of the following is NOT true regarding Annuity payments?
With Life Income, the Payee will receive retirement income payments for as long as the Annuitant is alive. With Life Income, the payments stop when the Annuitant dies. With Life Income Period Certain, the Payee will receive benefits for a set number of years after the Annuitant dies. With Life Income Period Certain, the ANNUITANT will receive benefits for a set number of years after the Annuitant dies.

Which of the following is NOT true regarding Annuity payments?
With Life Income Period Certain, the ANNUITANT will receive benefits for a set number of years after the Annuitant dies. (this is the statement that is NOT true)

Joint and Last Survivor Payee receives retirement income payments until the death of the last survivor of the lives insured. Two payment variations Joint and 2/3 Survivor Joint and 1/2 Survivor Joint and Last Survivor With Period Certain Payee will receive retirement income payments for the longer of (a) and (b) where: (a) Last Survivor’s lifetime (b) Period Certain (5, 10, 15, 20 years) Fixed Period Certain Payee receives payments for the fixed period (5, 10, 15, 20 years). Payments will be made for the fixed period whether the annuitant lives or dies during the fixed period.

Which of the following is a true statement regarding Annuity Payments?
With Joint & Last Survivor, the Payee receives retirement income payments until the death of the last survivor of the lives insured. With Joint and Last Survivor With Period Certain, the Payee will receive retirement income payments for the longer of (a) Last Survivor's lifetime, or (b) Period Certain (5, 10, 15, 20 years). With Fixed Period Certain, the Payee receives payments for the fixed period (5, 10, 15, 20 years) With Fixed Period Certain, the Payments will be made for the fixed period whether the annuitant lives or dies during the fixed period. All of the above. None of the above.

Which of the following is a true statement regarding Annuity Payments?
With Joint & Last Survivor, the Payee receives retirement income payments until the death of the last survivor of the lives insured. With Joint and Last Survivor With Period Certain, the Payee will receive retirement income payments for the longer of (a) Last Survivor's lifetime, or (b) Period Certain (5, 10, 15, 20 years). With Fixed Period Certain, the Payee receives payments for the fixed period (5, 10, 15, 20 years) With Fixed Period Certain, the Payments will be made for the fixed period whether the annuitant lives or dies during the fixed period. All of the above is correct.

Pay-Out Options Require Careful Planning Select payee(s) carefully. Payee does not have to be the annuitant or the owner. Designate beneficiary should payee die.

Which of the following is a true Annuity Contract definition?
A Contract Date and an Annuity Date are the same on all Annuities. All contracts allow a change in the annuity date prior to benefits being paid. Return a Variable annuity within Free Look & get any Premium allocated to a fixed account returned plus the value of the Separate Accounts. The Account Value is different than Cash Value or Accumulated Value.

Which of the following is a true Annuity Contract definition?
Return a Variable annuity within Free Look & get any Premium allocated to a fixed account returned plus the value of the Separate Accounts.

THE ANNUITY CONTRACT Page 1 of the Contract (Face Page)
Company Name & Address. Description of Annuity. Policy Form Number Lower Left Corner. Benefits Provided for Premium(s) paid. Notice of 10 Day Free Look. Legal Contract – READ CAREFULLY!!!

THE ANNUITY CONTRACT Page 2 of the Contract
Contains an index of all of the Contract provisions for easy page reference. Page 3 of the Contract Called Schedule Page or Data Page. Contract (Policy) Number. Contract Date & Annuity Date. Owner & Annuitant Information. Initial Premium Paid. Contains interest rates, guarantees, surrender charges, contract charges.

THE ANNUITY CONTRACT Page 4 of the Contract
Table of Guaranteed Minimum Values. Shown for minimum of 20 years. You will never receive less than the amounts shown. Minimum values State Law. Not Required for Variable Annuities.

Which of the following is NOT true the Annuity Contract?
Page 4 is the Table of Guaranteed Minimum Values. Minimum Values must be shown for at least 30 years. You will never receive less than the minimum amounts shown in the contract. Minimum Values are not Required for Variable Annuities.

Which of the following is NOT true the Annuity Contract?
Minimum Values must be shown for at least 30 years. (this statement is NOT true)

Interest Earnings Crediting Methodology Varies by product type: Fixed, Index or Variable. How interest credits are determined must be defined in the Annuity Contract.

INTEREST EARNINGS CREDITING METHODOLOGY – Fixed Annuity
Company declares an interest rate to be credited to the Contract. Interest rate typically guaranteed not to change for at least 1 Contract Year. Some Fixed Annuities are multi-year rate guarantee products. Example: interest rate may be guaranteed for a period of 5 years. Most Contracts specify a minimum guaranteed interest rate. Many Contracts pay a bonus interest rate in Contract Year 1. Bonus Interest could be anywhere from 0.25% to more than 5.00%.

Interest Earnings Crediting Methodology
Fixed Annuity Example: Premium - $ 100, Declared Rate Contract Year 1 – 7.00% Declared Rate Contract Year 2 – 5.75% Declared Rate Contract Year 3 – 5.25% Calculating the Account Value AV Year 1 = $ 100, x = $ 107, AV Year 2 = $ 107, x = $ 113, AV Year 3 = $ 113, x = $ 119,093.01

Fixed Deferred Annuity
… What are your thoughts on it? PROS CONS Simple Interest Crediting Methodology. Principle Protected Minimum Guaranteed Contract Values (SNFL). Contract may guarantee a minimum credited interest rate. Crediting Rate declared at discretion of Company. Interest Rate Spread not disclosed.

INTEREST EARNINGS CREDITING METHODOLOGY – Indexed Annuity
Index may be an… Equity Index Bond Index Other type of Index. Some Indexed Annuities have multiple Index Accounts. Formula states how the index rate (interest rate) is determined. Credited interest rate is based on an index and not declared by the Company. Credited interest rate is determined by a formula stated in the Annuity Contract. Formula determines how the change in the Index is calculated.

INTEREST EARNINGS CREDITING METHODOLOGY – Indexed Annuity
Formulas may involve participation rates and index spreads (interest spreads). Contract may state minimum participation rates and maximum index spreads. Formulas will state how the change in the Index is determined. Most common Index Annuity is the Equity Index Annuity. Most common Index is the Standard & Poor’s 500 (S&P 500). Two common formulas are the Point-to-Point formula and the Monthly Average formula.

Indexed Annuity Point-to-Point Example: Contract Date – 05/05/2003 Equity Index – S&P 500 Formula – Point-to-Point Guaranteed Minimum Participation Rate – 25% Guaranteed Maximum Index Spread – 12.00% Current Participation Rate Year 1 = 60% Current Index Spread Year 1 = 2.75% Index Rate Formula: IR = (CPR x PTPG) – CIS IR = Index Rate CPR = Current Participation Rate PTPG = Point-to-Point Growth in Index CIS = Current Index Spread

Indexed Annuity Point-to-Point Example:
Date S&P 500 Index 05-May-2003 926.55 05-June-2003 990.14 05-Jul-2003 985.70 05-Aug-2003 965.46 05-Sep-2003 1,021.39 05-Oct-2003 1,029.85 05-Nov-2003 1,051.81 05-Dec-2003 1,061.50 05-Jan-2004 1,122.22 05-Feb-2004 1,128.59 05-Mar-2004 1,156.86 05-Apr-2004 1,150.57 05-May-2004 1,121.53 PTPG = (B – A) / A where: B = Ending Index Value A = Starting Index Value Calculate the Index Rate PTPG = (B – A) / A A = B = 1,121.53 PTPG = (1, – ) / PTPG = or 21.04% Growth IR = Index Rate CPR = Current Participation Rate PTPG = Point-to-Point Growth in Index CIS = Current Index Spread PTPG = .2104 CPR = 60% (.60) CIS = 2.75% (.0275) IR = (CPR x PTPG) – CIS IR = (.60 x .2104) IR = or 9.87%

Indexed Annuity Monthly Average Example: Contract Date – Equity Index – S&P 500 Formula – 12 Month Average Guaranteed Minimum Participation Rate – 100% Guaranteed Maximum Index Spread – 8.00% Current Participation Rate – 100% Current Index Spread – 2.75% Index Rate Formula: IR = (CPR x MAG) - CIS IR = Index Rate CPR = Current Participation Rate MAG = Monthly Average Growth in Index CIS = Current Index Spread

Indexed Annuity Monthly Average Example:
Date S&P 500 Index 05-May-2003 926.55 05-June-2003 990.14 05-Jul-2003 985.70 05-Aug-2003 965.46 05-Sep-2003 1,021.39 05-Oct-2003 1,029.85 05-Nov-2003 1,051.81 05-Dec-2003 1,061.50 05-Jan-2004 1,122.22 05-Feb-2004 1,128.59 05-Mar-2004 1,156.86 05-Apr-2004 1,150.57 05-May-2004 1,121.53 MAG = (B – A) / A where: B = 12 Month Average Index Value A = Starting Index Value B = Sum of 12 months of S&P 500 Index Values divided by 12. Calculate the Index Rate MAG = (B – A) / A A = B = 1, (12, / 12) MAG = (1, – ) / MAG = or 14.99% Growth Index Rate Formula: IR = (CPR x MAG) - CIS IR = Index Rate CPR = Current Participation Rate MAG = Monthly Average Growth in Index CIS = Current Index Spread MAG = .1499 CPR = 100% (1.00) CIS = 2.75% (.0275) IR = (CPR x MAG) – CIS IR = (1.00 x .1499) – .0275 IR = or 12.24%

Index Deferred Annuity
… What are your thoughts on it? PROS CONS Interest rate is tied to Index and not declared at discretion of Company. Index Spreads and Participation rates are disclosed. Guaranteed Spreads and Participation Rates. Principle Protected Minimum Guaranteed Contract Values (SNFL). Up-side market potential without downside risk. Crediting methodology more complex to understand. More moving parts at discretion of Company. Product could credit 0% interest in some years when Index declines.

"Index" may be all of the following EXCEPT?
Equity Index Bond Index Standard & Poor’s 500 Interest earned on a savings account

"Index" may be all of the following EXCEPT?
Interest earned on a savings account (is NOT considered to be “Index”).

INTEREST EARNINGS CREDITING METHODOLOGY – Variable Annuity
The market value of a Sub- Account is called the Net Asset Value. Net Asset Value divided by the total number of shares is called the Net Asset Value per share. When premium is allocated to a Sub-Account, a certain number of units are purchased based on the Net Asset Value per share at the time of purchase. Allow owner to allocate premium into various sub- accounts. Sub-account is an ownership interest in an underlying fund (i.e. it is an investment). Sub-accounts are valued every day the stock market is open for trading.

The value per unit may be adjusted by a daily Mortality and Expense (M&E) fee, also called an Actuarial Risk Fee covers the company’s expenses and any guaranteed benefits provided by the company. Investment Expenses are deducted prior to determining the value per unit. The market value of the Sub- Account can increase or decrease. Therefore there is no guarantee of Premium or Principle. Each day the Sub-Account Value is the number of units times the value per unit.

Because the value of the Sub- Account is determined at market each day, there is no interest rate or interest earnings to be calculated or credited. Variable Annuity is a security and is regulated by the Securities and Exchange Commission (SEC) and the State Insurance Department. SEC regulates investment components, agent license and sales requirements, and mortality and expense fees. A prospectus is required to be delivered to the prospective buyer of a VA. The Account Value of a VA Contract is the sum of the values of all of the Sub-Accounts. Most VA Contracts offer a fixed account (General Account) investment option. This account works just like a fixed annuity and will have a credited interest rate declared by the Company.

Variable Annuity Greater potential for growth.
… What are your thoughts on it? PROS CONS Greater potential for growth. Lower surrender charges and spreads due to SEC regulations. M&E Fees are guaranteed not to change. NASD licensed agents. You can switch your allocations from time to time for a small fee or sometimes for free. Principle not protected on separate accounts. Complex to understand. Investment expenses taken out at fund level. Must review the prospectus.

Calculating the Number of Units Premium = $ 100, Value Per Unit = $ Number of Units = Premium / Value Per Unit Number of Units = $ 100, / $ Number of Units = 2, Variable Annuity Example: Issue Date of Policy Premium = $ 100,000 Variflex Growth Series on Net Asset Value = $ 3,987, Total Shares = 100,314 Net Asset Value per share = $ 3,987, / 100,314 Net Asset Value per share = $ Value Per Unit = $ Calculate Number of Units Purchased on Issue Date

Variable Annuity Example:
Value Per Unit $ 39.75 Net Investment Factor = Value Per Unit = Previous Day VPU times NIF Value Per Unit = x Value Per Unit $ Calculate the Account Value on On one day after issue, Variflex Growth Series Net Asset Value = $ 4,092, Total Shares = 102,830 Net Asset Value per share = $ 4,092, / 102,830 Net Asset Value per share = $ on Previous Day’s NAV per share = $ on GIF = $ / $ 39.75 GIF = on M&E Fee = 1.40% Annual Daily M&E Fee = [.0140 / 365] NIF = GIF – Daily M&E Fee NIF = – NIF = on NAV = Net Asset Value GIF = Guaranteed Investment Fund M&E = Mortality & Expense Fees NIF = National Investment Fund? Number of Units = 2, Value Per Units = $ Account Value = Number of Units x Value Per Unit Account Value = 2, x Account Value = $ 100,121.95

Which of the following is true regarding how interest is earned with Variable Annuities?
The owner allocates premium into various sub- accounts. Sub-accounts are valued every day the stock market is open for trading. The market value of the Sub-Account can increase or decrease. Therefore there is no guarantee of Premium or Principle. The value per unit may be adjusted by a daily Mortality and Expense (M&E) fee, also called an Actuarial Risk Fee. All of the above. None of the above

Which of the following is true regarding how interest is earned with Variable Annuities?
The owner allocates premium into various sub- accounts. Sub-accounts are valued every day the stock market is open for trading. The market value of the Sub-Account can increase or decrease. Therefore there is no guarantee of Premium or Principle. The value per unit may be adjusted by a daily Mortality and Expense (M&E) fee, also called an Actuarial Risk Fee. All of the above is true.

ANNUITY TAXATION Qualified Annuities
100% of the distributions or benefit payments are subject to income tax Minimum distributions are required to begin at age 70 ½ Distributions prior to age 59½ are subject to a 10% penalty tax Non-Qualified Annuities Only interest earned on the annuity is taxable Distributions prior to age 59½ subject to 10% penalty tax No age requirement for taking distributions Exclusion ratio determines the portion of the annuity benefit payment not subject to taxation The exclusion ratio is the ratio of the contract investment to the expected return

Which is a TRUE statement regarding taxation?
In a variable annuity, you pay taxes when you withdraw your money. Taxes from a variable annuity are paid it as Capital Gains tax. A mutual fund held for 12 months or more would only have to pay as Ordinary Income rate. In a variable annuity, you pay taxes when you DEPOSIT your money.

Which is a TRUE statement regarding taxation?
In a variable annuity, you pay taxes when you withdraw your money. (This statement is true)

SUITABILITY INFORMATION
…information that is reasonably appropriate to determine the suitability of a recommendation, including the following: (1) Age (2) Annual income (3) Financial situation and needs, including the financial resources used for the funding of the annuity (4) Financial experience (5) Financial objectives (6) Intended use of the annuity (7) Financial time horizon (8) Existing assets, including investment and life insurance holdings (9) Liquidity needs (10) Liquid net worth (11) Risk tolerance (12) Tax status

All of the following can assist you in determining the Suitability of an Annuity for your client EXCEPT: Age. Annual Income. Financial Situation. Financial Experience. Whether they are a male or female.

All of the following can assist you in determining the Suitability of an Annuity for your client EXCEPT: Whether they are a male or female. (this has nothing to do with suitability)

DUTIES OF THE INSURER & PRODUCER
In recommending to a consumer the purchase of an annuity (or the exchange of an annuity) that results in another insurance transaction … the insurance producer … shall have reasonable grounds for believing that the recommendation is suitable for the consumer on the basis of the facts disclosed by the consumer as to his or her investments and other insurance products and as to his or her financial situation and needs, including the consumer’s suitability information, and that there is a reasonable basis to believe all of the following: The consumer has been reasonably informed of various features of the annuity, such as the: Potential surrender period and surrender charge Potential tax penalty if the consumer sells, exchanges, surrenders or annuitizes the annuity Mortality and expense fees, Investment advisory fees Potential charges for and features of riders Limitations on interest returns, insurance and investment components and market risk; …

…Reasonably Informed that… (2) The consumer would benefit from certain features of the annuity, such as: Tax-deferred growth Annuitization Death or living benefit; (3) The annuity … riders and similar product enhancements, if any, are suitable (and in the case of an exchange or replacement, the transaction as a whole is suitable) … based on suitability information; and (4) In the case of an exchange or replacement of an annuity … suitability includes taking into consideration whether: The consumer will: Incur a surrender charge, Be subject to a new surrender period Lose existing benefits Be subject to increased fees, investment advisory fees (b) The consumer would benefit from product enhancements & improvements; and (c) The consumer has had another annuity exchange or replacement … within the preceding 36 months.

B. An insurance producer (or insurer where no producer is involved) shall make reasonable efforts to obtain the consumer’s suitability information … C. Except as permitted under subsection D, an insurer shall not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity is suitable based on the consumer’s suitability information. D. (1) Neither an insurance producer nor an insurer, shall have any obligation to a consumer … related to any annuity transaction if: (a) No recommendation is made; (b) A recommendation was made and was later found to have been prepared based on inaccurate material information provided by the consumer; (c) A consumer refuses to provide relevant suitability information and the annuity transaction is not recommended; or (d) A consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurer or the insurance producer. (2) An insurer’s issuance of an annuity is subject to … circumstances actually known to the insurer at the time the annuity is issued.

E. An insurance producer or (insurer representative) shall at the time of sale: (1) Make a record of any recommendation … (2) Obtain a customer signed statement documenting a customer’s refusal to provide suitability information, if any; and (3) Obtain a customer signed statement acknowledging that an annuity transaction is not recommended if a customer decides to enter into an annuity transaction that is not based on the insurance producer’s recommendation. (…or insurer’s)

At the time of the sale, the Producer must do which of the following?
Make a record of any recommendation. Obtain a customer signed statement documenting a customer's refusal to provide suitability information. Get customer's signature if customer decides to purchase an annuity that is not based on the producer's recommendations. All of the above. None of the above.

At the time of the sale, the Producer must do which of the following?
Make a record of any recommendation. Obtain a customer signed statement documenting a customer's refusal to provide suitability information. Get customer's signature if customer decides to purchase an annuity that is not based on the producer's recommendations. All of the above is correct.

(d) Maintain procedures for review of each recommendation prior to issuance of an annuity … Review procedures may apply a screening system … and may be electronic or physical review. Procedure may be designed to require additional review only of those transactions identified by the selection criteria … F. (1) An insurer shall establish a supervision system … to achieve compliance with this regulation to the following: (a) Inform its insurance producers of the requirements of this regulation … (b) Establish standards for insurance producer product training and procedures … (c) The insurer shall provide product-specific training and training materials …

(e) The insurer shall maintain reasonable procedure to detect recommendations that are not suitable. Confirmation of consumer suitability information Systematic customer surveys, Interviews Confirmation letters and Programs of internal monitoring. (f) The insurer shall annually provide a report … Including details of a review Appropriate testing reasonably designed to determine effectiveness Exceptions found Corrective action taken or recommended, if any. 2. (a) Nothing in this subsection restricts an insurer from contracting for performance … (1). An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties … (b) An insurer’s supervision system under paragraph (1) shall include supervision of contractual performance … This includes, but is not limited to, the following: (i) Monitoring and, as appropriate, conducting audits to assure that the contracted function is properly performed; and (ii) Annually obtaining a certification from a senior manager who has responsibility for the contracted function …

H. (1) Sales made in compliance with FINRA requirements … of annuity transactions shall satisfy the requirements. This applies to FINRA broker-dealer sales of variable annuities and fixed annuities if the suitability and supervision is similar to those applied to variable annuity sales. ***However, nothing in this subsection shall limit the insurance commissioner’s ability to enforce (including investigate) the provisions of this regulation Policy and Procedure.*** (2) For paragraph (1) to apply, an insurer shall: (a) Monitor the FINRA member broker-dealer using information collected in the normal course of an insurer’s business; and (b) Provide to the FINRA member broker-dealer information and reports that are reasonably appropriate to assist the FINRA member broker/dealer to maintain its supervision system. An insurer is not required to include in its system of supervision an insurance producer’s recommendations to consumers of products other than the annuities offered by the insurer. G. An insurance producer shall not dissuade … a consumer from: (1) Truthfully responding to an insurer’s request for confirmation of suitability information; (2) Filing a complaint; or (3) Cooperating with the investigation of a complaint.

COMPLIANCE MITIGATION; PENALTIES
A. An insurer is responsible for compliance with this regulation Policy and Procedure. If a violation occurs, either because of the action or inaction of the insurer or its insurance producer, the commissioner may order: (1) An insurer to take reasonably appropriate corrective action for any consumer harmed … (2) A general agency, independent agency or the insurance producer to take reasonably appropriate corrective action for any consumer harmed … (3) Appropriate penalties and sanctions. B. Any applicable penalty for a violation of this regulation … may be reduced or eliminated … if corrective action for the consumer was taken promptly after a violation was discovered or the violation was not part of a pattern or practice.

Which of the following is NOT true regarding Compliance Mitigation and Penalties?
The Insurance Department is responsible for tracking compliance of producers regarding Annuities Procedures. The Commissioner can require an Insurer to take corrective action for any consumer harmed. The Commissioner can require a Producer or Agency to take corrective action for any consumer harmed. A penalty for a violation may be reduced if corrective action for the consumer was taken promptly after a violation was discovered or the violation was not part of a pattern or practice. The Commissioner can order appropriate penalties and sanctions.

Which of the following is NOT true regarding Compliance Mitigation and Penalties?
The Insurance Department is responsible for tracking compliance of producers regarding Annuities Procedures. (This statement is NOT true)

RECORDKEEPING An insurer is permitted, but shall not be required, to maintain documentation on behalf of an insurance producer. Records required to be maintained by this Policy and Procedure may be maintained in paper, photographic, micro-process, magnetic, mechanical or electronic media or by any process that accurately reproduces the actual document. Insurers, general agents, independent agencies and insurance producers shall maintain or be able to make available to the commissioner records of the information collected from the consumer and other information used in making the recommendations that were the basis for insurance transactions for five years after the insurance transaction is completed by the insurer.

What can go wrong? Grace's story (from Suze Orman) When my father died, everything was left to my mom in an insurance policy. He left her $56,000, which was pretty much all she had. We were just sort of figuring this all out, when my mom started feeling really unwell, and it turned out she had cancer. The doctors couldn't tell how long she had, but they knew it wasn't very long, a matter of months or maybe a little longer. So my brother, my mom, and I went to a financial advisor, who put her into an annuity with a 10 year certain period of time. He said this would give her the highest possible monthly income. Now we knew she wouldn't live for ten years, but we also wanted her to have as much money every month as she could get. The advisor was really persuasive, and what did we know, anyway? We said fine. My mom died just two months later, and of course she left the money to my brother and me, and again we had to sort everything out. We decided we didn't want the annuity anymore, and called the advisor again. This time he wasn't so persuasive. He said that if we cashed it in, we would only get $38,000. This was just two months later! Our so-called investment went down by 32 percent! We found out where some of that money went when my brother read the fine print more carefully. The advisor made a commission of $3000. But knowing that this was all she had, and knowing that she was ill, why would he put her into an investment that lost so much money? We still don't understand it. Grace is right not to understand it, for it makes no sense from her standpoint. From the broker's standpoint, however, it made a great deal of sense. Let's define what an annuity is, and how all the different ones work, and then I will explain when they make sense and when they do not.

Annuity in a Retirement Account?
WHY ONE WOULD PURCHASE AN ANNUITY IN A RETIREMENT ACCOUNT? (by Suze Orman) 1) You are under the age of 59.5, and you need access to the funds in your retirement plan and you do not want to pay the 10% penalty. --By purchasing an annuity, there is a way that you can get around that 10% penalty. --If this is the case, I highly recommend an annuity be purchased within a retirement account. 2) You are approaching retirement age and you want to invest in the market but are afraid of losing money. --You are willing to take a smaller profit if you are guaranteed never to lose a penny. --Since the index annuity accomplishes this goal, even if it is in your IRA, it can still make sense.

VARIABLE ANNUITY within an IRA
COMPARISON CHART- TRADITIONAL IRA VS. VARIABLE ANNUITY WITHIN AN IRA TRADITIONAL IRA VARIABLE ANNUITY within an IRA Tax Deferral Yes Pre-59.5 Tax Penalty 70.5 Mandatory Withdrawal Surrender Charges No Yes (about 7 years) State Premium Tax Mortality Charges This chart is not applicable to annuities held in ROTH IRAs

Ordinary Income Taxes In a variable annuity, you pay taxes when you withdraw your money. You pay it as ordinary income taxes. A mutual fund held for 12 months or more would only have to pay the capital gains rate and for some people, that rate could be quite low.

NO STEP UP IN BASIS (Variable Annuity)
Maybe you plan to leave the money to your kids & to never take it out of the annuity, so you will not have to worry about a tax problem. With the variable annuity … you have passed the tax problem down to the kids. When they take the money out of the variable annuity, they will also have to pay income taxes on any of the growth of your funds, in addition to the additional fees and state premium tax cutting into your return. If you had purchased good mutual funds not in a variable annuity, and never took the money out … when you die and leave those funds to your kids, they will receive what is called a step up in cost basis on the value of those funds based on their worth the day you died. If they then sold those funds after they inherited them, and before there was an upward price swing, they would not owe a penny in income taxes.

When to say “Yes”! Tax-Sheltered Annuity (TSA) when appropriate
Index Annuity … when appropriate If your goal is to have income during retirement years … You do not want to take any risk with this money You want to avoid paying taxes now But you are still not currently in a high enough tax bracket to make municipal bonds make sense … And lastly feel that you will be in an even lower tax bracket when you retire … then I do have to say that a single premium deferred annuity is great. -- Suze Orman

ANNUITY SUITABILITY QUESTIONNAIRE
PROPOSED ANNUITANT’S PERSONAL INFORMATION Name: Last_____________________ First _________________ Middle_____________ Date of Birth / / Age____ Sex _______Tax Status_________________________ Number and Age of Dependents: ________________________________________________ JOINT ANNUITANT INFORMATION Name: Last_____________________ First _________________ Middle _____________ Date of Birth / / _ Age____ Sex ______Tax Status__________________________ Number and age of Dependents: ________________________________________________ APPLICANT/OWNER OTHER THAN ANNUITANT/JOINT ANNUITANT Owner: Last_____________________ First _________________ Middle________________ Date of Birth / / Age ____ Sex ________ Entity: _____________________________________________________________________ Tax Status _____________ Relationship to Annuitant(s): _____________________________ Form of Ownership: __________________________________________________________ Supporting documents (list): ___________________________________________________

APPLICANT JOINT ANNUITANT Annual Income: Source of Income: Annual Household Income: Net Worth: Liquid Assets: Do you currently own any annuities? Yes No Please list: Do you currently own life insurance? _______________/________ __________________/______ Applicant’s Signature/Date Joint Applicant’s Signature/Date

APPLICANT JOINT ANNUITANT Does your income cover all your living expenses including medical? Yes No Yes No Explain: Do you expect changes to your living expenses? Yes No Do you anticipate changes in your medical expenses? Is your income sufficient to cover future changes in your living and/or medical expenses during the surrender charge period? If no, please explain: Do you have an emergency fund for unexpected expenses? Please explain:

Why are you purchasing this annuity? ___________________________ What are your investment objectives? (Check all that apply) Income Growth (long term) Safety of Principal and Income Safety of Principal and Growth Pass assets to beneficiary(ies) at death Other: _________________________________________________ Describe your risk tolerance: (Check all that apply) Conservative Moderately conservative Moderate Moderately aggressive Aggressive Other: _______________________________________ Comments: _________________________________________________ Describe your investment experience by type and length of time: _____________ _________________________________________________________ What is the source of the funds for the purchase of the proposed annuity? _______

How long do you plan to keep the proposed annuity? ____________________ Will the proposed annuity replace any product? Yes No If yes, will you pay a penalty or other charge to obtain these funds? Yes No If yes, the amount of the charge or penalty $ ___________.____ ________________/________ ____________________/______ Applicant’s Signature/Date Joint Applicant’s Signature/Date

This section to be completed by the agent, insurer, or Managing General Agent proposing purchase Advantages of purchasing the proposed annuity: __________________________________ _____________________________________________________________________________ Disadvantages of purchasing the proposed annuity: ________________________________ The basis for my recommendation to purchase the proposed annuity or to replace or exchange your existing annuity(ies): ________________________________ __________________ Agent’s Signature Date Signed Note: No questions or response area are to be left blank when offered to the Annuitant and/or Applicant for signature. If any information requested is unavailable, not applicable or unknown, the insurance agent or insurer must indicate that.

Which of the following statements are true regarding the Agent's responsibility to make sure the purchase of an Annuity is in the client's best interest: The Agent has reasonable grounds to believe the Annuity is suitable (based on facts and information disclosed by the client). The consumer has been "reasonably informed" regarding surrender period & charges. The consumer has been "reasonably informed" regarding potential tax penalties and other charges. The consumer has been "reasonably informed" regarding Mortality & Expense fees as well as Investment Advisory Fees. The consumer has been "reasonably informed" regarding Limitations on interest returns, insurance and investment components and market risk. All of the above. None of the above.

Which of the following statements are true regarding the Agent's responsibility to make sure the purchase of an Annuity is in the client's best interest: The Agent has reasonable grounds to believe the Annuity is suitable (based on facts and information disclosed by the client). The consumer has been "reasonably informed" regarding surrender period & charges. The consumer has been "reasonably informed" regarding potential tax penalties and other charges. The consumer has been "reasonably informed" regarding Mortality & Expense fees as well as Investment Advisory Fees. The consumer has been "reasonably informed" regarding Limitations on interest returns, insurance and investment components and market risk. All of the above is correct.

It is the producer's responsibility to make sure of which of the following?
The Annuity, Riders & Enhancements are suitable to the insured. The consumer would benefit from Tax-Deferred Growth, Annuitization, Death or Living Benefits. Inform consumer regarding potential tax penalty. Consider whether the consumer has had another annuity exchange or replacement within the preceding 36 months. All of the above. None of the above.

It is the producer's responsibility to make sure of which of the following?
The Annuity, Riders & Enhancements are suitable to the insured. The consumer would benefit from Tax-Deferred Growth, Annuitization, Death or Living Benefits. Inform consumer regarding potential tax penalty. Consider whether the consumer has had another annuity exchange or replacement within the preceding 36 months. All of the above is correct.

ACKNOWLEDGEMENTS AND SIGNATURES I understand that should I decline to provide the requested information or should I provide inaccurate information, I am limiting the protection afforded my by the State Statues regarding the suitability of this purchase. I have chosen NOT to provide this information at this time. I have chosen to provide LIMITED information at this time. APPLICANT: DO NOT SIGN THIS FORM IF ANY ITEM HAS BEEN LEFT BLANK, BEFORE CAREFULLY REVIEWING THE INFORMATION RECORDED, OR IF ANY OF THE INFORMATION RECORDED IS NOT TRUE AND CORRECT TO THE BEST OF YOUR KNOWLEDGE. ________________________ _____________ Applicant or Owner Signature Date Signed Joint Applicant or Owner Signature Date Signed

Which of the following are EXCEPTIONS to the Insurer's Duty regarding Annuities?
No recommendation was made. The recommendation was made based upon inaccurate information given by the consumer. The consumer refuses to provide suitability information and an Annuity is not recommended. A consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurer or the insurance producer. All of the above. None of the above.

Which of the following are EXCEPTIONS to the Insurer's Duty regarding Annuities?
No recommendation was made. The recommendation was made based upon inaccurate information given by the consumer. The consumer refuses to provide suitability information and an Annuity is not recommended. A consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurer or the insurance producer. All of the above is correct.

All of the following can assist you in determining the Suitability of an Annuity for your client EXCEPT: Intended use of the annuity. Financial time horizon. Existing assets (including investment and life insurance holdings). Liquidity Needs and Liquid Net Worth. Risk Tolerance. Tax Status What part of the country they live in.

All of the following can assist you in determining the Suitability of an Annuity for your client EXCEPT: What part of the country they live in. (this has nothing to do with suitability)

TIPS It only makes sense to put your money into an annuity if you can:
leave it there for at least ten years and the withdrawals are scheduled to occur after age 59-1/2. Assess the costs of an annuity relative to the alternatives. Separate purchase of life insurance and tax-deferred investments may be more cost effective. The greater the investment return, the less punishing the 10% penalty on withdrawal under age 59-1/2 will appear. If your variable annuity investments have grown substantially, you may want to consider taking some of those profits (despite the penalty, which applies only to the taxable portion of the amount withdrawn). Before buying an annuity, contribute as much as possible to other tax-deferred options such as IRA’s and 401 (k) plans. The reason is that the fees for these plans is likely to be lower than those of an annuity and early-withdrawal fees on annuities tend to be steep.

TIPS Shopping for an Annuity:
Check out the Insurer … make sure that the insurance company offering it is financially sound A.M Best, Moody’s, Standard & Poor’s, Duff & Phelps & Fitch Compare Contracts Immediate annuities: Compare the settlement options. For each $1,000 invested, how much of a monthly payout will you get? Be sure to consider the interest rate and any penalties and charges. Deferred annuities: Compare the rate, the length of guarantee period, and a five-year history of rates paid on the contract. It is important to consider all three of these factors and not to be swayed by high interest rates alone. Variable annuities: Check out the past performance of the funds involved. Utilize the Variable Annuity Research & Data Service at

EXPLANATION OF TERMS “Age” … is the natural person’s attained age on the day the form is completed. “Tax Status” … is the senior consumer’s Federal Income Tax filing status such as “single” or “married filing jointly”; if “Exempt”, so state. “Form of Ownership” … is the type of entity, other than a natural person, including a corporation, trust, partnership, limited liability company, or other business or not-for-profit entity. “Supporting documents” … are the documents that provide a basis for the relationship between the Proposed Annuitant, Joint Annuitant if applicable, and the Applicant/Owner as it may exist.

EXPLANATION OF TERMS “Annual income” … is income received during a calendar year, whether earned or unearned. “Source of annual income” … is the income-generating source, such as pension income, dividends, or earned income, etc. “Annual household income” … is the combined annual income received by all household members each calendar year. “Total Net Worth” … is the senior consumer’s total assets minus total liabilities or encumbrances applicable to those assets. “Liquid Assets” … are financial holdings that can readily be converted into their cash equivalent, without loss of principal.

EXPLANATION OF TERMS “Investment Objectives” are the senior consumer’s stated goals as described to the insurance agent. (1) Income (2) Growth (long term capital appreciation) (3) Safety of Principal and Income (4) Safety of Principal and Growth (5) To pass the investment to a beneficiary or beneficiaries at death. “Risk Tolerance” means the degree of uncertainty that an investor can reasonably tolerate with regard to a negative change in his or her investments. (1) Conservative (prefer little or no risk) (2) Moderately conservative (some risk, reduced safety of principal) (3) Moderate (average risk with potential losses and potentially higher returns) (4) Moderately aggressive (above average risk with potential losses, risk of principal and potentially higher returns) (5) Aggressive (willing to sustain losses or loss of principal in pursuit of higher returns).

EXPLANATION OF TERMS “Source of the funds” is… where the funds will come from to purchase the proposed annuity, and may include but are not limited to: An existing annuity or life insurance contract Liquid Assets, including but not limited to, cash in banks, maturing certificates of deposit, and money market accounts Personal Loans Equity Loans Mortgages, Reverse Mortgages Death Benefit Proceeds Funds received upon retirement from employment, including but not limited to, 401(k) accounts, pensions, and other tax-sheltered funds Equities, mutual funds, or bonds Proceeds from real estate transactions.

EXPLANATION OF TERMS “Intended use of the annuity” means the purpose for which the senior consumer is considering the recommended purchase or exchange. This may include the following: Immediate income (within 60 days or less) Tax Shelter (protection from taxation of all types while in force) Interest earnings Income stream at a stated age Creditor Protection (a desire to protect assets from attachment by any legal process) OIR feels this can stay in as one can legitimately protect assets from Medicaid for example, with the right annuity contract Other, as stated by the Senior Consumer.

Annuities For Dummies From Annuities For Dummies by Kerry Pechter
Tips for Deciding on an Annuity Assess your needs. … Estimate living expenses in retirement & identify all sources of income. … take a serious look at your personal situation. Consider your options if you don't have a traditional pension… You can use an income annuity to build a do-it-yourself pension. Get familiar with your "risk tolerance." Determine what risks you can tolerate and which ones you can't. For example, if a 500-point drop in the Dow doesn't deprive you of sleep, then you probably don't need a life annuity. Expect trade-offs in risk and reward… Annuities are insured investments, which means they protect you from some of the risks that accompany investing. But greater safety often means smaller gains, so some risks may be worth taking. Count on living longer… Most people underestimate their lifespan by several years, and half of all 65-year-old Americans will live past age 83. … Guard the womenfolk! Women tend to outlive their husbands, and therefore have a much greater risk of running out of money during their lifetimes. That's why prudent couples buy "joint-and-survivor" life annuities. Protect yourself from inflation. The rising cost of living can erode your purchasing power in retirement. An income annuity with an inflation rider or a variable income annuity can help. Look at how much you need to spend. An advanced life deferred annuity (ALDAs) is an inexpensive way to guarantee yourself an income in late retirement while pumping up your spending power in early retirement. Get a discount for less-than-ideal health. If you think you'll have a shorter-than-average lifespan, check out "impaired risk" annuities. They'll give you bigger-than-average monthly payments.

Thank you! At this time, you may enter the ClassMarker website at For password type: ces2010 Click on Enter. Provide the details requested on the following page. Click on “Start Test”. There is no time limit, however if you leave the test for some time, it may require you to begin again. It will show you (and I as the provider) your test results. Upon completion of the test, call me at , and I will have you fax your signed affidavit to me. My FAX number is Upon receipt, I will fax your certificate to you and file the results with the Insurance Department!

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