ON-Trac II Table of Contents INTRODUCTION & NAVIGATION INSTRUCTIONS UNIT XXIII-KS: ADVANCED ANNUITIES (Start Here) The States of Florida, Kansas and Oklahoma require that you complete one section of a self-study course at a time and pass a quiz, verifying that you have understood the material presented, before moving on to the next section. When you complete the section, fill out and submit the review request form at the end of the chapter. In response to your request, you will receive a link to the section review. Submit your answers and they will be scored. If you pass the review with a score of at least 70 percent, you will receive a link to the next section. If you do not pass the review, you will be requested to reread the section. Following, you will find the Table of Contents for the entire course, plus a link to our online CE map. Please click the link above to begin Section I of the Advanced Annuities (FL, KS & OK Only) self-study course. TABLE OF CONTENTS CHAPTER 1: Annuities – Historical Development Page 1 – Annuities & Historical Development Table of Contents Page 2 – Important Note Page 4 – Introduction to Annuities Page 5 – Advantages of Annuities Page 6 – About This Course Page 7 – Historical Development of Annuity Contracts Page 9 – How they have evolved to the products and practices we see today as they relate to consumers. Page 11 – Products & Practices Page 12 – Market Overview CHAPTER 2: Introducing Types & Classifications of Annuities Page 15 – Introduce the Types of Annuities, Recognizing the Various Classifications of Annuities Page 16 – Annuity type according to when benefits are paid out. Page 16 – Define immediate annuity. Page 16 – Define deferred annuity. Page 16 – Distinguish between the characteristics of the two types. Page 17 – Annuity type according to how and when premiums are paid. Page 17 – Define single premium annuities. Page 18 – Define level premium annuities. Page 19 – Define flexible premium annuities. Page 19 – Distinguish between the characteristics of the types. Page 20 – Annuity type according to investment options offered. Page 20 – Define fixed annuities. Page 21 – Define variable annuities. Page 22 – Define indexed annuities. Page 22 – Distinguish between the characteristics of fixed, indexed, and variable annuities. CHAPTER 3: Parties to an Annuity Contract Page 23 – Identify the Parties to an Annuity Page 23 – Describe the rights and obligations of the annuity owner. Page 23 – Identify the entities eligible for annuity ownership. Page 24 – Distinguish the rights of the annuity owner in owner-driven contracts. Page 25 – Distinguish the rights of the annuity owner in annuitant-driven contracts. Page 26 – Describe the rights and obligations of the annuitant. Page 26 – Identify the entities eligible for the role of annuitant. Page 26 – Distinguish the role of annuitant in owner-driven contracts. Page 26 – Distinguish the role of annuitant in annuitant-driven contracts. Page 28 – Describe the rights and obligations of the insurance company. Page 28 – Distinguish obligations with insurance company issued non-qualified annuities. Page 28 – Distinguish obligations with insurance company issued annuities for individual retirement accounts, tax sheltered annuities, and qualified retirement plans. Page 29 – Advertising Responsibilities (Section 787 of the CIC) Page 31 – Policy Cancellation & Refunds Page 33 – Describe the rights and obligations of the insurance producer. Page 33 – Disclosure Page 34 – Illustrations Page 35 – Replacement Page 36 – Free Look Period Page 37 – Importance of Reviewing Sample Contracts Page 38 – Describe the rights of and options available to beneficiaries. Page 38 – Identify the entities eligible for the role of beneficiary. Page 39 – Discuss the settlement options available to beneficiaries. Page 39 – As a Surviving Spouse Page 39 – As an Individual or Entity Other than a Surviving Spouse CHAPTER 4: How Fixed, Variable & Index Annuities Affect Consumers Page 43 – How Fixed, Variable & Index Annuity Contract Provisions Affect Consumers Page 43 – Identify and discuss contract provisions that are typically common to annuities. Page 43 – Interest Rates & Compensation Page 43 – First-Year Bonus "Teaser" Rates Page 44 – Issue Ages Page 45 – Maximum Ages for Benefits to Begin Page 46 – Crisis Waivers Page 46 – Nursing Home Page 46 – Terminal Illness Page 46 – Unemployment Page 46 – Disability Page 46 – Charges & Fees Page 47 – Premium Payments Page 48 – Settlement Options upon Death of Owner or Annuitant Page 48 – Tax: Qualified Plan Page 48 – Stretch Page 48 – Tax: Non-Qualified Plan Page 48 – Stretch Page 49 – Surrender Charges Page 50 – Market Value Adjustment Page 51 – Policy Administration Charges & Fees Page 51 – Withdrawal Privilege Options Page 52 – Annuitization Options Page 54 – Identify and discuss contract provisions that are typically common to fixed annuities. Page 55 – Death Benefits Page 55 – Lump-Sum vs. 5-Year Pay Out Page 55 – Provisions Page 58 – Charges & Fees Page 59 – Interest Rate Strategies Page 59 – Annual Page 59 – Multi-Year Page 60 – Crediting Methods Page 60 – Portfolio Rates Page 60 – New Money Rates Page 61 – Minimum Guaranteed Interest Rates Page 61 – Low Interest Rate Environment Impact on Interest Rates Page 62 – Identify and discuss contract provisions common to variable annuities. Page 63 – Variable Options Page 63 – Equity-Based Page 63 – Risk-Based Page 64 – Fixed Options Page 65 – Charges & Fees Page 66 – Dollar-Cost Averaging Page 67 – Explain annualized interest rate calculations on bonuses that apply to fixed accounts. Page 68 – Death Benefit Guarantees Page 69 – Living Benefit Guarantees Page 70 – Identify and discuss contract provisions common to indexed annuities. Page 71 – Primary Interest Crediting Strategies Page 71 – Monthly Averaging Page 71 – Point-to-Point Page 71 – Annual Point-to-Point Page 71 – Long-Term Point-to-Point Page 72 – High Water Mark Page 72 – Annual Resets Page 72 – Combination Methods Page 73 – Spreads Page 73 – Cap Rates Page 74 – Participation Rates Page 74 – Minimum Guaranteed Interest Rate Page 75 – Impact of Premature Surrender Charges Page 76 – Charges & Fees Page 77 – Identify and discuss available riders. Page 77 – Life Insurance Riders Page 77 – Long-Term Care Benefits Riders Page 77 – Terms of Riders Page 77 – Differentiate between Crisis Waivers & Long-Term Care Riders Page 77 – Loan Provisions CHAPTER 5: Taxation of Qualified & Non-Qualified Annuities Page 79 – Discuss Application of Income Taxation of Qualified & Non-Qualified Annuities in the Following Instances Page 80 – Payment of Premiums Page 81 – Cash Value Accrual Page 82 – Partial Withdrawals Page 83 – Loans & Assignments Page 84 – IRS Section 1035 Exchanges Page 85 – Gift of an Annuity Page 86 – Sale of an Annuity by the Owner Page 87 – Death of an Annuity Owner Page 87 – Death of an Annuitant Page 89 – Ordinary Income Tax Adjustment Page 90 – Annuity Benefits Distributions Page 91 – Discuss the exclusion ratio and its application in distribution calculations. Page 93 – Tax Effect on Beneficiary Estate Issues Page 94 – Disclaimer Page 94 – If a life agent offers to sell to a client any life insurance or annuity product, the life agent shall advise the client or the client's agent in writing that the sale or liquidation of this product may have tax consequences. Page 94 – The life agent shall disclose that the client may wish to consult independent legal counsel or financial advice before buying, selling or liquidating any assets being solicited or offered for sale. Page 94 – This course is not intended to provide advice with issues surrounding income and estate taxation of annuities. If expert tax assistance is required, life agents shall advise client to consult with other professionals. CHAPTER 6: Market & Buyer Demographics Page 95 – Market & Buyer Demographics Page 98 – Qualified Plans & Annuities Page 99 – Qualified Vs. Non-Qualified Plans Page 101 – Many Planning Choices Page 101 – Defined Benefit Plan Page 103 – Defined Contribution Plan Page 104 – Private Sector & Public Sector Plans Page 104 – Individual Retirement Accounts (IRAs) Page 106 – Roth IRAs Page 107 – 401Ks Page 108 – TSAs (Tax-Sheltered Annuities) Page 110 – SEPs (Simplified Employee Pension Plans) Page 112 – IRA Rollovers Page 113 – The Single Premium Deferred Annuity Market Page 115 – The Flexible Premium Deferred Annuity Market Page 116 – The Single Premium Immediate Annuity Market Page 117 – The Split-Funded Annuity Market Page 119 – The Qualified Annuity Market Page 120 – Before Retirement: Deferred Annuity Savings Page 121 – At Retirement: Immediate Annuity Advantages Page 122 – Qualified Plan Rollovers/Transfers CHAPTER 7: The Primary Uses of Annuities Page 123 – Discuss Primary Uses of Annuities Page 124 – Tax-Deferred Compounding Page 125 – Discuss the proper way to compute taxable vs. tax-deferred vs. tax-free returns. Page 126 – Discuss the long-term effect of tax-deferred compounding vs. other available investment choices. Page 128 – Income Distributions Page 128 – Introduce the application of a split annuity in retirement planning. Page 129 – Introduce the various settlement options. Page 129 – Life Page 130 – Joint Survivor Page 131 – Period Certain Page 131 – Cash Refunds Page 132 – Discuss the advantages and disadvantages of annuitization options. Page 132 – Discuss the tax ramifications of annuitization options. Page 132 – Non-Qualified Annuitization Options Page 134 – Qualified Annuitization Options Page 135 – Advantages & Disadvantages Page 135 – Advantages of Annuities Page 135 – For Persons under 60 Years Old Page 138 – For Persons 60 Years Old & Older Page 140 – Surrender Charges Page 141 – Disadvantages of Annuities Page 141 – For Persons under 60 Years Old Page 143 – For Persons 60 Years Old & Older Page 145 – Surrender Charges Page 146 – Illustrate the advantages and disadvantages of the following types of investment. Page 146 – Alternatives to Annuities Including: Page 146 – Bonds Page 146 – CDs Page 146 – Commodities Page 146 – Investment Trusts Page 146 – Limited Partnerships Page 146 – Money Markets Page 146 – Mutual Funds Page 146 – Options Page 146 – Promissory Notes Page 146 – Real Estate Page 146 – Savings Page 146 – Stocks Page 146 – Viatical Settlements CHAPTER 8: The Senior Market Page 147 – The Senior Market Page 151 – Risk & the Senior Client Page 155 – Pre-Retirement vs. Post-Retirement Planning Page 161 – Financial Concerns Page 163 – Social Security Page 165 – Retirement Plan Distributions Page 167 – Investing Retirement Assets Page 169 – Insurance Concerns Page 169 – Health Page 176 – Long-Term Care Page 178 – Estate Planning Page 183 – Meeting the needs of the Senior Market Page 183 – Product Complexity Page 184 – Unique Ethics & Compliance Issues CHAPTER 9: Sales Practices for Producers Page 187 – Sales Practices for Producers Page 188 – Appropriate Advertising Page 188 – Advertising for Persons 65 Years Old & Older Page 188 – Definition of Advertisement: Envelopes, Stationery, Business Cards Page 189 – Required Information to Be Displayed Page 190 – Use of the Word "Insurance" Page 191 – License Number Page 191 – Seminars, Classes & Informational Meetings Page 192 – Required Information to Be Displayed Page 192 – Use of the Word "Insurance" Page 192 – License Number Page 193 – Direct Mailers Page 193 – Advertisements may not look like those of a government agency, non-profit or senior organization. Page 193 – Coverage not provided or endorsed by government agency, non-profit or senior organization. Page 193 – Advertiser is not connected with government agency, non-profit or senior organization. Page 193 – Coverage or advertiser is not related to government agency. Page 193 – Any person or entity that is exempt from licensure, or non-resident agents representing an insurer that is a direct response provider. Page 193 – Fines & Penalties Page 194 – Prohibited Sales Practices Page 194 – In-Home Solicitations: 24-Hour Notice Requirement for Persons 65 Years Old & Older Page 194 – Criteria Page 194 – For Persons 65 Years Old & Older Page 194 – Content of Written Notice Page 194 – Cannot Misrepresent True Content of Meeting Page 195 – Sharing Commissions with Attorney Page 195 – Unnecessary Replacement Page 196 – Define "Unnecessary Replacement." Page 196 – Pay a surrender charge. Page 196 – Examples of Unnecessary Replacement Page 197 – Define substantial financial benefit. Page 198 – Bait & Switch Page 198 – Pre-Text Interview: Definition & Examples Page 199 – Living Trust Mills & Pretext Interviews Notice, Commissioner Low Page 201 – Classic Trust Mill: Alliance for Mature Americans Page 202 – Long-Term Care Sales Page 202 – Unauthorized Practice of Law-Drafting, Delivering, Interpreting Legal Documents (Business & Professions) Page 203 – Cause for Suspension Page 203 – Loans Page 203 – Agent Beneficiaries Page 203 – Agent as Trustee Page 203 – Agent as Power of Attorney Page 203 – Benefits Payable to Family or Friends of Agent Page 203 – Exceptions Page 204 – Discuss the importance of determining client suitability for annuity sales (NAIC Senior Protection in Annuity Transactions Model Act & Regulation) Page 205 – Identify the need for information prior to making recommendations. Page 206 – The Consumer's Financial Status Page 206 – Income Page 206 – Liquid Assets Page 206 – Is comprehensive LTC insurance in place? Page 207 – The Consumer's Tax Status Page 208 – The Consumer's Investment Objectives Page 208 – Other Information to Be Used or Considered Relevant Page 210 – Discuss the need for full contract disclosure. Page 210 – Discuss the need for complete recordkeeping. Page 211 – Identify required disclosures. Page 211 – Policy Cancellations & Refunds Page 211 – Free Look for Persons 60 Years Old & Older CHAPTER 10: Reserving Issues with Annuity Contracts Page 213 – Reserving Issues with Annuity Contracts Page 220 – How They Differ with Other Life Insurance Contracts Page 221 – Limits Companies May Place on Annuity Sales Due to Reserving Issues Page 226 – How does this impact the consumer's decision in purchasing an annuity contract? Page 226 – How does the low interest rate environment impact reserving and annuity payouts and rates of return? CHAPTER 11: Consumer Attitudes Toward Retirement Page 229 – Consumer Attitudes Toward Retirement Page 231 – How does the utilization of annuities help fulfill consumer's retirement goals as compared to other financial planning vehicles? CHAPTER 12: The Role of State Life & Health Guarantees in Relationship to Annuities Page 239 – The Role of State Life & Health Insurance Guarantees in Relationship to Annuities Page 244 – Certificates of Completion, CE Credits & CE Map Page 245 – Exam Request View our online map to determine if your state has approved this course for Continuing Education credits and how many credits you can receive. Click this link, then click on your home state for a complete list. This course is accessible online 24 hours a day, 7 days a week. Student information will not be sold or distributed to any third party without prior written consent of the student. Registering and/or taking the course shall not constitute consent. 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