Glossary
A-B trust⎯a trust that divides the deceased’s property into two parts, according to the grantor’s will. The marital Part A trust is designed to hold assets that qualify for the marital deduction. The nonmarital Part B trust is designed to preserve the full estate tax credit for the grantor spouse.
accumulation units—what a policyowner is credited with when
he or she invests a portion of the premium in the subaccounts of a variable annuity. The value of the accumulation units will vary depending on the investment performance of the underlying subaccounts.
accumulation value—the dollar amount of the value of the
annuity. The accumulation value is the amount in the annuity prior to the imposition of surrender charges.
active listening⎯a method of listening in which the agent demonstrates his or her understanding of the prospect’s perspective and can state in the prospect’s own words what the prospect has said and meant to communicate
additional markets for annuities⎯market segments for annuity products involving specialized financial-needs-based concepts, including structured settlements, business planning, charitable planning, college funding, and estate planning
advance medical directive⎯either a durable power of attorney for healthcare or a living will, which lets the physician and other healthcare providers know the kind of medical care an individual wants, or does not want, if he or she becomes incapacitated
age-based—an effective way to segment the annuities market
by age
age-based market segment—one of three market segments for
goal (those under age 45 years old), (2) prospects who see retirement as a more immediate concern (those ages 45 to 64), and (3) prospects who are enjoying retirement or semi-retirement (those age 65 and older)
age 70 1/2 IRS penalty tax—a tax imposed by the Internal
Revenue Service when minimum distributions from qualified plans and individual retirement accounts are not distributed as mandated. The penalty tax is equal to 50 percent of the amount that was required to be distributed but was not.
alternative funding services⎯financing alternatives to annu-ities used in retirement that include Social Security, pensions, personal savings, and employment
annual contract charge—an annual fee charged against the
account value of fixed-interest annuities and variable annuities
annual reset—indexing method for indexed annuities that
pro-vides growth by locking in the previous year’s anniversary value. It com-pares the positive change in the index from the beginning of the policy year to the end of the policy year.
annuitant—the measuring life for deferred and immediate
annu-ities who must be a living person and cannot be a nonnatural entity
annuitization—the process by which a deferred annuity is
trans-formed into a guaranteed payout stream (for example, a life income with 10 years period certain). However, the amount of the income payments is not guaranteed with variable income annuities.
annuity⎯the annual payment of an allowance or income; the right to receive this payment or the obligation to make this payment; an investment on which a person receives fixed payments for a lifetime or a specified number of years; a contract or agreement under which one or more persons receive periodic payments in return for prior set payments made by themselves or another (as an employer)
annuity disclosure—a disclosure document recommended by
the NAIC to be given to an individual prior to purchasing an annuity. The NAIC adopted a model regulation in 1999 that recommends the specific information that should be disclosed in the document.
approach⎯the step in the selling/planning process that involves asking the prospect for an appointment. An approach can be done face-to-face or via the telephone.
asset allocation—the process of developing a diversification
strategy that allocates premiums to various asset classes to build an overall portfolio consistent with the investor’s risk tolerance and long-term goals
asset fee—the amount assessed by an insurance company on
indexed annuities. The fee is applied against the growth in the index and reduces the amount of interest the insurer credits to the annuity. See also margin and spread.
assumed investment return (AIR)—an interest rate used to
determine the amount of initial income from a variable immediate annuity
automatic rebalancing—readjusting a portfolio back to the
ori-ginal asset allocation among the subaccounts after growth has occurred. Many variable annuities offer this service.
averaging—a term used with indexed annuities in which the
indexed points are averaged together over a daily basis or a monthly basis, rather than using the actual value of the ending index on one spe-cified date
Baby Boomer Generation—population segment born between
1946 and 1964. Many members of this generation are educating their children and taking care of aging parents. Because of this dual role, they are sometimes referred to as the sandwiched generation.
back-end load—a fee imposed by the insurance company when
withdrawals or surrenders are taken from a deferred annuity. These fees are generally imposed only during a fixed period of time beginning with the issuance of the annuity (also called a contingent deferred sales charge). See also surrender charge.
beneficiary—the person or entity entitled to receive the
benefit—what the buyer receives as a result of a feature—that is,
what the product does for the buyer and why he or she wants it
bonus interest rate—an interest rate sometimes added on top of
the first-year interest rate of a fixed-interest deferred annuity. The dur-ation of the bonus interest is usually one year.
broker-dealer—a person who engages in the business of
effect-ing transactions in securities for the account of others, or who is engaged in the business of buying and selling securities for his or her own account. Broker-dealers must become members of the NASD.
building prestige⎯a preapproach strategy in which an advisor implements a personal public relations campaign designed to build and maintain a good reputation within a target market and the community at large
buying signals⎯obvious verbal and nonverbal signals that indi-cate acceptance or rejection of what an advisor is selling
cap rate—a term used with indexed annuities that defines the
maximum interest rate that may be credited to the policy for the defined time period
center of influence—an influential person who knows an
ad-visor, has a favorable opinion of the adad-visor, and agrees to introduce or recommend him or her to others
charitable gift annuity—a type of charitable gift in which a
donor gives an asset to a charity in exchange for a lifetime income. A charitable gift annuity is not an annuity sold by an insurance company.
charitable remainder trust—a type of charitable gift in which a
donor gives assets to a trust in exchange for an annual income stated as a percentage of trust assets. Upon death, the charity receives the balance of the trust assets.
contract term—a term used with deferred annuities to describe
the length of time during which the particular index is measured
cost basis—the amount of premiums a policyowner paid into
creditor protection—the concept that some annuities can be
pro-tected from attachment by the policyowner’s creditors. The level of protec-tion varies from state to state; not all states protect annuities from creditors.
death benefit—the amount of proceeds from an annuity that are
payable to the beneficiary upon the death of the annuitant
deductive approach⎯an approach to the personal information-gathering process that starts with a thorough and lengthy fact-finding form that broadly covers all the prospect’s financial needs. The process requires quantifying a prospect’s financial planning needs, prioritizing them, and then selling the prospect the appropriate product or products that address the highest priority of need.
deferred annuity—a type of policy offered by an insurance
company in which a person deposits a lump sum or a series of payments into a contract without determining a specified point in time when, or if, the policy will be annuitized into an income stream
designated beneficiary—a legal concept that applies to an
indi-vidual named as the beneficiary of a qualified annuity. A designated ben-eficiary must be a person and cannot be a trust, estate, or corporation. It does not have the same meaning as a typical beneficiary. For example, a corporation can be named as beneficiary, but for purposes of distribution options at the death of the annuitant, the corporation is not a “designated beneficiary.”
direct mail⎯a preapproach strategy that involves sending a let-ter or postcard to a prospect. Some direct mail strategies involve a give-away (or premium offer).
discovery agreement⎯a verbal or written mutual agreement between the advisor and the prospect to work together to address the prospect’s expressed financial goals. It is formulated at or after the con-clusion of the initial fact-finding interview.
diversification⎯a risk management technique in which the investor does not put all his or her money into one investment but, instead, invests across asset categories to take advantage of the rela-tionships between different investments that tend to have highly opposite fluctuation sensitivities in order to minimize risk
dollar cost averaging—the consistent investment of equal
peri-odic payments into a diversified equity-based investment over an ex-tended period of time. It is also defined as depositing regularly scheduled additional premiums into a flexible-premium deferred annuity.
durable power of attorney⎯a document signed by one person (the principal) authorizing another person (the attorney-in-fact) to act on behalf of the signer. The word durable indicates that the power stays in effect in the event that the signer becomes incapacitated.
effective communication⎯important interviewing skills such as knowing how and when to ask appropriate types of questions, being an active and empathetic listener, and being able to explain financial needs and insurance products to prospects
exclusion ratio—the ratio or percentage applied to an immediate
annuity payment to determine how much of the payment is excluded from income taxation
existing clients⎯a prospecting source for annuity products consisting of people with whom the advisor has an established pro-fessional relationship because they have already purchased at least one financial product
expected return—a factor in the calculation of the exclusion
ratio for immediate annuities. The expected return is the total amount of payments the policyowner can expect to receive from the immediate annuity. The total investment is divided by the expected return to pro-duce the exclusion ratio.
fact-finder⎯a self-contained discovery document for gathering facts, figures, and feelings from prospects that is designed to quantify and qualify their need for financial products
fair dealing⎯essential rules of ethical conduct set forth by the NASD that provide guidance to advisors in recommending financial products to prospective clients
feature—a characteristic about a product—what it is and what
fixed-amount annuity—a type of immediate annuity in which
the policyowner declares the amount of the payment desired, given the lump-sum premium, and the insurance company establishes the specific time frame during which the specified amount of income will be paid
fixed-interest annuity⎯tax-deferred annuity in which the issuing insurance company guarantees the principal deposited into it against loss, along with a guaranteed compound interest rate that will be created to the cash value for the benefit of the contract owner. Generally, the insurer offers the annuity owner a guaranteed interest rate for a certain period of time, after which a periodically declared current com-pound interest rate will apply to the policy’s cash value until some specified future maturity date.
fixed-period annuity—a type of immediate annuity in which the
payments to the policyowner are payable for a finite period of time. At the end of the time period, the payments cease. The policyowner declares the length of time desired, given the lump-sum premium, and the insurance company establishes the dollar amount of payments for the specified time frame.
flexible-premium annuity—a type of deferred annuity in which
the policy allows the owner to make additional contributions beyond the initial premium
flexible-premium deferred annuity—a type of deferred annuity
in which the policyowner may deposit more than one premium
401(k) plan—a type of qualified profit-sharing plan offered by
employers to their employees
403(b) plan—a type of qualified retirement plan for public
school employees and 501(c)(3) organizations. See also tax-sheltered annuity.
free-corridor amount—an amount of money the policyowner
can withdrawal from the annuity each year during the surrender charge period without the imposition of a surrender penalty. It is commonly equal to 10 percent of the annuity’s value.
free-look period—a feature of annuity policies that offers the
purchaser a specified period of time during which the purchaser may return the policy to the insurer for a full refund for any reason. In most states, the free-look period is 10 days from the date the policy is delivered to the customer.
free-window period⎯limited number of days at the end of the contract term in an equity-indexed annuity during which it can be renewed for another contract term, exchanged for another type of annuity such as a fixed or variable annuity, annuitized and the annuitant can begin to receive the benefits under one of the available settlement options, or partially or completely surrendered without incurring com-pany surrender charges
front-end load—a term applied mostly to variable annuities that
describes a fee charged against the initial premium paid into a deferred annuity.
fund expense—an asset-based fee for management operations of
the various subaccounts in a variable annuity. It is charged for the ex-pense of paying fund managers and the fund’s operating exex-penses.
general account—the investment option in a variable annuity
that guarantees the owner’s principal and a stated level of interest earn-ings. It can also be referred to as the guaranteed account.
general power of attornery⎯a document signed by one person (the principal) authorizing another person (the attorney-in-fact) to act on behalf of the signer. A general power is effective as long as the person granting the power remains in good health, but it becomes legally inef-fective in cases of mental incompetence or medical incapacity.
generation⎯an age-based segmentation of the general popula-tion developed by demographers. It is based on the theory that the general population’s psyche and behavior are shaped by significant life experiences, such as the way people are raised, national and world events, wars, the social and economic climate of the times, and so forth.
Generation X⎯population segment born between 1965–1981. They are the children of Baby Boomers or the younger members of the Silent Generation.
guaranteed minimum accumulation benefit—a benefit
avail-able in variavail-able deferred annuities that guarantees that the value of the annuity can be stepped up to a certain amount on a specified date, wheth-er or not the contract ownwheth-er annuitizes
guaranteed minimum interest rate—the lowest interest rate
established in a deferred annuity that the insurance company promises it will always pay. Traditionally, 3 percent has been the guaranteed min-imum interest rate, but recently, states are lowering this amount due to the prolonged time frame of low interest rates during which insurance companies have been operating.
guaranteed minimum income benefit—a benefit offered in
variable deferred annuities that increases the owner’s investment by some compounded percentage—typically between 3 and 6 percent. At the end of a specified period, the increased amount may be used to turn the contract into an immediate annuity.
guaranteed minimum return of premium benefit—a benefit
offered in variable deferred annuities that guarantees that the owner may take back the premium after a specified number of years if the invest-ment is more than the account value
healthcare power of attorney⎯a signed and witnessed legal document by one person that designates another person (the healthcare proxy) to make important medical decisions about his or her care in the event that the signer becomes incapacitated
high water mark—a crediting method used with indexed
annuities in which the growth in the index is credited by comparing the index point at the end of each policy year to the last highest anniversary point within each contract term. If the current point is higher, then interest is credited from the last highest point to the current point.
immediate annuity—a type of annuity in which the
policy-owner pays a lump sum of money to the insurance company in exchange for a guaranteed stream of income. The length of time the income stream is payable varies with the specific type of payout requested by the policyowner.
index average—the number that reflects the average earnings of
a particular index
indexed annuity—a type of deferred annuity in which the
inter-est earnings are tied to an index usually outside the control of the insur-ance company. Usually, the index is an equity index, but it can be a bond index. Indexed annuities were introduced in 1995.
individual retirement account (IRA)⎯a type of retirement plan established by individuals that has limited contribution amounts. Distributions from IRAs are generally fully taxable.
inductive approach⎯the converse of the deductive approach to information gathering. It starts with a dominant or single need, then broadens into a full-blown comprehensive financial need analysis where several financial planning needs are identified and prioritized.
interest rate guarantee period—the length of time during
which the insurance company will promise the payment of a specified amount of interest earnings
investment objectives⎯financial goals the client wishes to accomplish by purchasing a particular investment product. These may include safety of principal, tax reduction, asset appreciation strategies, the need for liquidity, generation of current income, and preservation of purchasing power. A client’s time horizon and tolerance to exposure to financial risks are factors the advisor must also consider in recommending products to achieve the desired financial goals.
investment risk⎯the inherent exposure to loss of principal, interest, or dividends, capital gain, purchasing power, tax advantages, other investment opportunities, or any other financial advantage that a client is exposed to by purchasing financial products
irrevocable life insurance trust (ILIT)⎯an estate planning technique in which a life insurance policy covering the grantor spouse’s life is purchased and owned by the irrevocable trust. The ILIT allows the grantor spouse to provide support benefits for the surviving spouse, while avoiding inclusion of the proceeds in the estate of either spouse.
irrevocable trust⎯a type of trust that cannot be terminated or changed once established. Assets transferred into it are considered
completed gifts that are beyond the control of the grantor of the trust. Such a trust allows the grantor to specify his or her wishes as to the management and eventual disposition of property within it.
joint and survivor annuity—a type of immediate annuity
payout in which the policyowner and another person chosen by the policyowner are the measuring lives over which the annuity payments are made. The annuity payments will continue in full or in a reduced amount as specified in the contract upon the death of the first annuitant and will cease upon the death of the second annuitant.
joint and survivor life annuity with period certain—a type of
immediate annuity payout in which the policyowner and another person chosen by the policyowner are the measuring lives over which the annuity payments are made. The annuity payments will continue until the death of the last annuitant, with a minimum payment period, generally 5, 10, 15, 20, 25, or 30 years.
joint and survivor life annuity with installment or cash refund—a type of immediate annuity payout in which the policyowner
and another person chosen by the policyowner are the measuring lives over which the annuity payments are made. Under the installment refund option, the insurance company will refund the remaining balance of the deposit by continuing payments to the named beneficiary after the second annuitant’s death until the full deposit is returned. Under the cash refund option, the insurer will refund the discounted present value of the remaining payments in a lump sum.
joint annuitant—a deferred or immediate annuity that names
two annuitants over whose lives the payments will be made
joint owner—a deferred or immediate annuity that names two
owners of the policy. Each owner has equal rights to the policy. Both owners must agree to all policy transactions to be effective.
life annuity with period certain—a type of immediate annuity
in which the insurance company will pay the policyowner payments for the entire life of the annuitant. In the event the annuitant dies before the end of a specified period (5, 10, 15, 20, 25, or 30 years) beginning with the issuance of the policy, the insurance company will continue payments to the named beneficiary for the rest of that period.
life-only annuity—a type of immediate annuity in which the
insurance company will pay the policyowner payments for the entire life of the annuitant. Upon the death of the annuitant, payments will cease, regardless of the length of time the annuitant actually lived.
life with cash refund—a type of immediate annuity in which the
insurance company will pay the policyowner payments for the entire life of the annuitant. In the event the policyowner dies before receiving back in payments the amount of premium paid, the insurance company will pay the difference between the dollar amount of the original premium and the total payments paid prior to death in a lump-sum payment to the beneficiary.
life with installment refund—a type of immediate annuity in
which the insurance company will pay the policyowner payments for the entire life of the annuitant. In the event the policyowner dies before receiving back in payments the dollar amount of the premium originally paid, the insurance company will continue payments to the named beneficiary until the dollar amount of the original premium has been paid.
lists⎯a prospecting source that contains the names of prospects within a target market or market segment who will likely have an interest in annuity products
living will⎯a legal document that describes the types of medical treatment an individual chooses to accept or reject. The purpose of a living will is to let others know a person’s medical wishes when he or she is terminally ill or in a vegetative state and unable to communicate.
long-term care benefit rider⎯a policy rider that gives the owner of a deferred annuity contract access to cash values (usually up to 50 percent of annuity cash values without a surrender change) if the annuitant, up to a maximum specified age, has to enter a long-term care facility
margin—a fee assessed by an insurance company with indexed
annuities. This fee is applied against the growth in the index and reduces the amount of interest the insurer credits to the annuity. See also asset fee and spread.
market conduct—a term relating to insurance companies’ and
regulate insurance companies on the basis of their market conduct to make sure that consumers are treated fairly.
market segment⎯an identifiable group of people with common characteristics and needs
market value adjustment—an increase or decrease in the
annuity’s value, depending on the overall level of interest rates in the United States economy relative to the interest rate in the specific annuity. If the policy’s interest rate is 8 percent and the market is earning only 4 percent, the policy’s values would be adjusted upward under this feature if the owner surrenders early.
maturity date—the date in deferred annuity policies at which
point the policy terminates and is payable in full to the policyowner, usually when the annuitant is age 85 or 90.
mortality and expense charge (M&E)—asset-based charge
against the investment subaccounts in a variable annuity. The average M&E charge is 1.31 percent.
National Association of Insurance Commissioners (NAIC)—
the entity that provides a forum for creating uniform insurance laws and regulations. The NAIC is comprised of the state insurance commis-sioners, the District of Columbia, and four U.S. territories.
National Association of Securities Dealers (NASD)—the entity
responsible for regulating the securities industry and enforcing the rules of the SEC. Broker-dealers must become members of the NASD.
networking⎯the process of communication and sharing ideas and prospects with others whose work does not compete with the parti-cipating advisor
nonnatural person—a trust, business, corporation, estate, or
other legal entity that is not a living person
nonqualified annuity—a particular type of annuity
classi-fication defined by the type of funds invested in the annuity. Non-qualified funds are those that have already been subject to income tax by the taxpayer. The opposite of a nonqualified annuity is a qualified
annuity in which the premiums are funded with money that has not been taxed to the policyowner.
nonqualified retirement planning—a market segment for
annui-ties involving either (1) the deposit of after-tax premiums into tax-favored deferred annuities for the purpose of accumulating dollars for retirement, or (2) the deposit of after-tax premiums into immediate annuities for the purpose of providing a stream of income during retirement
nonverbal signals—gestures, bodily movements, or facial
expressions, such as leaning forward, listening attentively, making eye contact, nodding, showing appreciation, or participating, that indicate acceptance or rejection of a person or an idea
objections, four categories of—resistance to purchasing annuity
products that falls into one of four general categories: no need, no money, no hurry, and no confidence
options—an investment used by insurance companies when
investing equity-indexed annuity premiums. Investing in options allows the insurance company to meet its obligations to pay interest earnings based on outside indexes. By buying options, the insurer owns the right to any gain in the index. The cost of options can vary widely.
owner—the person or legal entity who enters into the annuity
contract with the insurance company and who has all the legal rights to the contract, including the right to name the beneficiary and the right to withdraw policy values
partial Sec. 1035 exchange—a term used with deferred
annuities when a policyowner takes a portion of the cash values from an existing deferred annuity and transfers it directly to a new annuity policy purchased from another insurance company
partial surrender—an amount taken from the cash values of a
deferred annuity by the policyowner prior to the maturity date of the policy. See also withdrawal.
participation rate—a term used with indexed annuities to
credited to the annuity values. Participation rates are generally 70 to 100 percent.
pension plan—a type of retirement plan offered by employers to
their employees
percentage change—the change in the index to which an
indexed annuity’s performance will be measured, starting from the beginning of the contract term to the end of the contract term, expressed as a percentage. For example, if the S&P 500 Index stands at 1,000 at the beginning of the term and it rises to 1,150, there is a 15 percent change.
pivot approach—making the transition from a successful or
unsuccessful sale or discussion of one product and asking for an appointment to discuss another financial or insurance need and product
pivoting—a suggestion to the prospect that he or she consider
alternative products when the prospect does not qualify for an annuity
point-to-point—a type of indexing method with indexed
annuities which credits interest earnings by measuring from one particular index point to a second particular index point
pre-59 1/2 IRS penalty tax—a 10 percent IRS penalty tax
assessed against annuity owners who take withdrawals or surrenders from their policies prior to age 59 1/2 and do not fall within one of the exceptions to the rule. The tax is assessed against the amount of the withdrawal that is subject to ordinary income tax.
preapproach—any method or strategy used to create awareness
of the advisor and interest in his or her products so that prospects are preconditioned to meet with the advisor and buy the products. Examples of methods include direct mail, building prestige, and a professional brochure.
preliminary discovery agreement—a verbal mutual agreement
between the advisor and the prospect to work together to construct a plan to address the prospect’s expressed financial goals. This agreement comes after the prospect has been properly qualified and prior to completing the fact-finding segment of an interview.
premium bonus—a dollar amount of money sometimes
available on indexed annuities that is applied on top of the amount of premiums paid by the policyowner. The addition of a premium bonus will often increase the surrender charges in the policy and/or the length of the surrender charge period.
private annuity—a contract between two people in which one
person transfers assets to the other in exchange for lifetime income. It is often used to transfer assets from one generation to the next in the context of estate planning. It is not a product sold by an insurance company.
professional brochure—a printed introductory preapproach
piece that includes self-promotional information such as the advisor’s name and contact information, a mission statement, a short biography, credentials (designations, experience, and so forth), services, and products
prospecting—continual, systematic process of identifying
individuals who are potentially qualified and willing to purchase the products and services an advisor provides
prospecting sources—existing clients, referrals, centers of
influence, networking, seminars, and lists. Seminars, which are a prospecting and marketing source, are of particular significance in the annuities market.
prospectus—a document required in the sale of variable
annuities that outlines the fees and expenses charged in the policy, the product features, and the investment options. The SEC regulates the contents of the prospectus, as well as at what point it is given to the potential purchaser.
qualified annuity—a particular type of annuity classification
defined by the type of funds invested in the annuity. Qualified funds are those that have not yet been subject to income tax by the taxpayer. Qualified annuities include IRAs, SEP IRAs, tax-sheltered annuities, SIMPLE IRAs, pension plans, and profit-sharing plans. The opposite of a qualified annuity is a nonqualified annuity in which the premiums are funded with money that has already been taxed to the policyowner.
qualified prospects—people who meet the following criteria:
They (1) need and value your products and services, (2) can afford to pay for your products and services, (3) are insurable or financially suitable, and (4) can be approached by you on a favorable basis.
qualified retirement planning—a market segment for annuities
involving either (1) the deposit of pre-tax premiums into tax-favored deferred annuities for the purpose of accumulating dollars for retirement, or (2) the deposit of tax-qualified premiums into immediate annuities for the purpose of providing a stream of income during retirement. This involves the sale of IRAs, SIMPLE plans, SEPs, tax-sheltered annuities, and a variety of other employer-sponsored qualified retirement plans.
ratcheting—the term for indexed annuities that defines how the
measuring point for the particular index is determined each year. It compares the positive change in the index from the beginning of the policy year to the end of the policy year. See also annual reset.
referral—a person who has been suggested by another person as
a prospect who may be interested in the products and services an advisor provides. Referrals are also known as referred leads and can come from clients, prospects, centers of influence, and even nonprospects.
renewal interest rate—the interest rate declared in
fixed-interest deferred annuities that follows the initial fixed-interest rate guarantee period. The policyowner has no input on what interest rate will be credited in the renewal periods.
required beginning date—the date on which the participant of a
qualified annuity needs to begin taking required minimum distributions. The date is generally April 1 following the year the participant reaches age 70 1/2. For some individuals, it is the later of the above date or the date the person actually retires.
required minimum distributions⎯the dollar amount of funds that must be withdrawn from qualified annuities when owners reach their required beginning date. The failure of a participant to withdraw the minimum distribution will result in an IRS penalty tax of 50 percent of the amount that should have been withdrawn but was not.
retirement planning fact-finder—a comprehensive
question-naire that is designed for the discovery of personal data and retirement goals, quantitative data, and retirement income sources from a prospect. It also includes a worksheet and interest tables used to calculate the amount of any additional retirement income needed.
revocable living trust—a trust created when the grantor
transfers the trust property to the trustee but retains the power to alter or terminate the arrangement and reclaim the trust property. Trust assets are fully includible in the estate at the owner’s death. Property that passes through the living trust has its ownership transferred to the trust.
rising floor death benefit⎯a death benefit in a variable deferred annuity in which the benefit is equal to the larger of the account value or the premiums paid plus interest
risk management—a technique used to balance the risks of an
individual’s various investment decisions one against the other. One of the best ways to manage risk is through financial diversification. Risk management through diversification offers an opportunity for clients with low risk tolerance to balance loss of principal concerns against needs for capital appreciation.
risk tolerance—the degree to which one is willing to accept
exposure of his or her financial resources to one or more types of investment risk
rollover—the process of moving a qualified plan or IRA
distribution to an IRA account within 60 days. A rollover can be transacted only once a year.
rollover IRA—a tax-qualified investment vehicle that accepts
funds from either IRAs or other qualified retirement plans
Roth IRA—a type of individual retirement account that offers
limited after-tax contributions but offers tax-free retirement income
SARSEP (salary reduction simplified employee pension)—a
type of qualified retirement plan in which employees had the ability to defer a portion of their salary to the plan. This type of plan is no longer offered.
Sec. 1035 exchange—the transaction in which an annuity’s cash
values are exchanged by surrendering one annuity for a new annuity, usually with a different insurance company. The process can happen without the policyowner being subject to any income taxes on the gain in the original annuity contract. IRC Sec. 1035 is the code section that allows this transaction.
Securities and Exchange Commission (SEC)—the entity that
oversees and regulates the U.S. securities markets. It is concerned with the accurate disclosure of information to investors.
security—a type of investment regulated by the Securities and
Exchange Commission. Fixed-interest deferred annuities are exempted from regulation as securities, but variable annuities are not.
segmenting—the process of finding groups of prospects with
common needs and characteristics
seminar—a prospecting method in which the financial advisor,
alone or as part of a team of professional advisors, conducts an educational and motivational meeting for a group of people who are interested in a particular topic
seminar checklist—a comprehensive list of items that
summarizes the details and logistics necessary to conduct a successful seminar
Senior Protection in Annuity Transactions Model Reg-ulation—a model regulation adopted by the National Association of
Insurance Commissioners in 2003 to set standards and procedures for recommendations of annuity products to consumers aged 65 and older
SEP IRA (simplified employee pension)—a qualified
retire-ment plan for business owners or self employed persons
separate account—the investment option of the variable annuity
that houses the various subaccounts. These assets are segregated from the insurance company’s other assets; hence, the term “separate” account. The variable annuity is made up of two accounts: the separate account and the general account.
Silent Generation—population segment born prior to 1946,
sometimes referred to as the GI, Swing, or Mature Generation
SIMPLE IRA—a type of qualified retirement plan introduced in
1997 for employers with 100 or fewer employees
single-premium annuity—a type of annuity, deferred or
imme-diate, in which the policyowner can make only one premium at the point of policy issue. No additional premiums can be deposited into a single-premium annuity.
single-premium deferred annuity—a type of deferred annuity,
whether fixed or variable or equity-indexed, in which the policyowner can only make one premium at the point of policy issue. No additional premiums can be deposited into a single-premium deferred annuity.
social style—predictable patterns of behavior that people display
in assertive/responsive situations. Understanding and responding appropriately to the characteristics of each social style enables the advisor to establish rapport with a prospect who has that style.
solvency—financial stability. State insurance departments are
concerned with the financial solvency of the insurance companies oper-ating within their state’s borders.
spousal IRA—an individual retirement account in which a
working spouse makes the contribution on behalf of a nonworking spouse
spousal rollover—an IRA established by the spouse of a
de-ceased person funded with monies from the dede-ceased person’s qualified retirement account or IRA
spousal Roth IRA—a Roth IRA account in which a working
spouse makes the contribution on behalf of a nonworking spouse
spread—the difference between the earnings an insurance
com-pany makes on the premium dollars it invests and the amount of interest earnings the insurance company credits to the policyowner for those same premium dollars. Generally, insurance companies intend to earn at least a 2 percent spread on premiums it invests.
Spread is also referred to as the amount assessed by an insurance company with indexed annuities. The fee is applied against the growth in the index and reduces the amount of interest the insurer credits to the annuity. See also asset fee and margin.
springing durable power of attorney—a document signed by
one person (the principal) authorizing another person (the attorney-in-fact) to act on behalf of the signer. A springing durable power becomes operative only when a specified event occurs, such as the physical or mental incapacity of the principal.
state guaranty association—a nonprofit association created in
each of the 50 states designed to cover the losses of policyowners’ funds if the insurance companies become insolvent
state insurance department—the entity in each of the 50 states
that regulates insurance activity within the borders of the particular state
stepped-up death benefit—a death benefit in a variable
deferred annuity in which the benefit is updated on specific policy anniversary dates by the policy value as of that date, if higher. Step-up dates can occur every year or at specified intervals, depending on the policy’s design (also referred to as a ratcheted death benefit).
step-rate annuity—a fixed-period annuity used in structured
settlements in which annuity benefit payments can generally be increased according to a predetermined schedule of years or on a compound annual rate of interest
stretch IRA—a concept, not a particular type of annuity policy,
in which beneficiaries of IRA accounts can avoid a lump-sum death benefit and take only the required minimum distributions
structured settlement—lifetime financial support that is
composed of periodic payments instead of, or in addition to, a single lump-sum payment awarded by a court to an injured party or throughout the minority of dependent heirs. These annuity contracts are specifically tailored to meet financial needs of the claimants who are the injured or wronged parties. The periodic payments of income are received tax free by the claimant during his or her life and by the claimant’s beneficiaries thereafter for the balance of any guarantee period.
subaccounts—similar to mutual funds, accounts that are part of
the separate account of a variable annuity contract. The subaccounts offer investment funds into which the policyowner allocates his or her premiums.
substantially equal periodic payments (SEPPs)—the series of
withdrawals an annuity owner can take from a deferred annuity policy prior to the owner’s age 59 1/2 without being assessed a 10 percent IRS penalty tax
suitability—a concept of appropriateness that has been required in
the sale of variable annuities but that has not been required in the sale of fixed or indexed annuities until 2003. Suitability was addressed in 2003 in the sale of both fixed and variable annuities through the NAIC’s adoption of the Senior Protection in Annuity Transactions Model Regulation.
surrender—the complete withdrawal of a deferred annuity
policy by the owner. A surrender is distinguished from the payment of a death benefit if the annuitant dies or from the payment of the annuity values when the policy matures.
surrender charge—a fee imposed by the insurance company for
withdrawals or partial surrenders taken from a deferred annuity policy during the surrender charge period, usually during the first 7–10 years from the issuance of the policy. The fee is expressed as a percentage of the amount withdrawn or surrendered.
surrender charge period—the length of time from the issuance
of a deferred annuity during which the insurance company will impose a fee for amounts withdrawn or surrendered. Surrender charge periods usually last for 7-10 years.
surrender value—the portion of the deferred annuity contract
that is available to the policyowner upon a complete redemption of the policy. During the early years of an annuity, the surrender value is less than the accumulation value. The difference is due to the surrender charge imposed by the insurance company.
target market—a market segment that is large enough so that
the advisor does not run out of prospects and that has a communication system that will facilitate the process of identifying prospects
tax deferral—the feature of deferred annuity policies that allows
the cash values to grow each year without the policyowner having to pay income tax each year on the growth. Instead, the policyowner is not subject to tax until the annuity values are withdrawn or surrendered.
tax-sheltered annuity (TSA)—a type of qualified retirement
plan for public school employees and 501(c)(3) organizations. See also called a 403(b) plan.
telephone approach—use of the telephone to set an
appoint-ment with a prospect
terminal illness rider—a policy rider that may be offered on
deferred annuity contracts where a certain amount of the annuity’s cash values can be accessed without the imposition of surrender charges if the policyowner (or annuitant, depending on the specific language of the rider) suffers from a terminal illness
total expense ratio—the combination of the mortality and
expense charge with the fund expenses in a variable annuity. The average total expense ratio is 2.26 percent.
transfer—the process by which qualified annuity funds are
moved from one policy to another without the policyowner being subject to income taxes on the policy. It is similar to the IRC Sec. 1035 exchange allowed on nonqualified annuities. Annuity owners can transfer their qualified plan policies on an unlimited basis.
trust—a legal agreement that contains instructions to the trustee
from the grantor regarding what can and cannot be done with the trust property. The four components of a trust are the corpus, grantor, trustee, and beneficiary.
variable annuity—a specific type of annuity that is considered a
security and in which the risk of loss is shifted away from the insurance company to the policyowner. A variable annuity allows purchasers to participate in the investment of their annuity funds by determining how their contributions will be invested among a series of accounts.
variable immediate annuity—a stream of income payments
pay-able to the annuity owner by an insurance company in which the payments vary with the investment experience of the underlying investment vehicle.
wealth enhancer—a marketing concept that promotes the
conversion of an annuity into life insurance by surrendering the annuity and depositing the after-tax proceeds into a life insurance policy. The goal of the concept is to provide the beneficiary with tax-free death benefits.
withdrawal—an amount of money taken from a deferred
annuity contract before the annuity reaches the maturity date See also partial surrender.
