RMI 3011 Prof Lynne McChristian Exam 3 CHAPTER 10 1 How do annuities differ from life insurance Both annuities living to long and life insurance dying to young should be considered in your long term financial plan While both include death benefits you buy life insurance in the event you die too soon and an annuity in case you live too long In other words life insurance provides economic protection to your loved ones if you die before your financial obligations to them are met while annuities guard against outliving your assets Annuity a periodic payment that continues for a fixed period or for the duration of a designated life or lives Annuitant the person who receives the periodic payment or whose life governs the duration of payment The fundamental purpose of an annuity is to provide a lifetime income that cannot be outlived Three types of Annuities fixed in amount A Fixed annuity pays periodic income payments that guaranteed and B Variable annuity pays lifetime income but the income payments vary depending on common stock prices C Equity indexed annuity is a fixed deferred annuity that allows the annuity owner to participate in the growth of the stock market provides downside protection against the loss of principal and interest earnings if the annuity is held to term and also prior 2 Define accumulation period Period specified in an insurance policy after which it comes into force and during which no claim can be made under the policy During the accumulation period variable annuity premiums purchase accumulation units which are then converted into annuity units at retirement The number of annuity units remain constant during retirement but the value of the annuity units changes periodically so that the income payments will change over time While you are paying into the annuity you are collecting units Accumulation is what you are paying into it 3 What are the fees and expenses how do they work You don t get a annuity and cash it in in two years later because it will cost you For Variable Annuities A Investment management charge payment to the investment manager and asset management company for the brokerage services and investments advice provided in the management of the investment portfolio RMI 3011 Prof Lynne McChristian Exam 3 B Administrative charge This charge covers the paperwork record keeping and periodic reports to the annuity owner C Mortality and expense risk charge M E pays 1 the morality risk associated with the guaranteed death benefit and excessive longevity 2 a guarantee that annual expenses will not exceed a certain percentage of assets after the contract is issued and 3 an allowance for profit D Surrender charge Most annuities have a surrender charge if the annuity is surrendered during the early years of the contract This charge helps to pay agents and brokers who sell variable annuities 4 Why would someone consider an IRA rollover If you get a new job and have money in your IRA in your old job you don t take that money out or you will get taxced so you do an IRA rollover into that new account A rollover is a tax free distribution of cash or other property from one retirement plan which is then deposited into another retirement plan The amount you roll over is tax free but generally becomes taxable when the new plan pays out that amount to you or to your beneficiary 5 What are the eligibility requirements for an IRA Traditional IRA Have taxable compensation below certain annual limits Roth IRA Have taxable compensation below certain annual limits and no and younger than 70 age limit 6 Know advantages disadvantages of longevity insurance Longevity insurance is a generic name for a single premium deferred annuity that begins paying benefits only at an advanced age typically age 85 They are low cost annuities because there are no cash values or death benefits in the policy Advantages Monthly benefits kick in when other assets may be diminished Low cost Can be purchased with an inflation hedge Disadvantages Heirs lose money if the person dies during the deferral period i e no death benefit Once purchased funds are locked up so no access to emergency funds RMI 3011 Prof Lynne McChristian Exam 3 CHAPTER 11 1 Know the primary challenges of the U S health care system Rising health care expenditures Large number of uninsured in the population Uneven quality of medical care Considerable waste and inefficiency Defects in financing health care Abusive insurer practices 2 What are the main provisions of the Affordable Care Act ACA Individual Mandate Health Insurance reforms Essential Health benefits Affordable Insurance Exchanges Premium Credits to Eligible Individuals and Families Employer Requirements Premium Subsides to small Employers Early Retirement Reinsurance Program Expansion of Medicaid Preexisting Condition Insurance Plan Improving Quality and Lowering Costs Cost and Financing 3 Name the advantages of the ACA for small employers Provides substantial subsidies to uninsured individuals and small businesses to make insurance more affordable Small employers can receive significant tax credits under the new law There are tax incentives 4 Why do some employers self insure what options do self insured employers have for managing the paperwork and controlling costs Self insurance means the employer pays part or all of the cost of providing health insurance to the employees Self insuring can save employers 10 to 25 on their healthcare costs Why is it less costly Because insurers build in higher profit margins to account for the actuarial risk of higher than expected healthcare costs AND the risk of fully insured upfront RMI 3011 Prof Lynne McChristian Exam 3 5 What are the differences between an HMO and PPO The most popular plan today is a preferred provider organization PPO A PPO contracts with physicians hospitals and other health care providers to provide covered medical services to policyholders at discounted fees 6 What are the disability requirements For some Initial period such as 2 years total disability is typically defined as the in ability to preform all duties of the insured s own occupation After that time total disability is defined as the inability to preform the duties of any occupation for which the insured is reasonably fitted by education training and experience CHAPTER 12 13 1 Who can participate in a pension plan Most plans have a minimum age and service requirement that must be met RMI 3011 Prof Lynne McChristian Exam 3 All eligible employees
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