FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProcessing Customer Orders and TransactionsHard
A registered representative learns that one of their clients has unexpectedly passed away. The client owned a variable annuity contract with a named beneficiary. What is the most important step the representative should take regarding the annuity contract?
- AAdvise the client's family to liquidate all subaccounts immediately.
- BContact the insurance company to notify them of the death and initiate the claims process for the beneficiary.
- CSuggest the beneficiary consider an immediate 1035 exchange into a new annuity.
- DTransfer the annuity contract into the beneficiary's name without further action.
Show answer & explanationAnswer & explanation
Correct answer: B. Contact the insurance company to notify them of the death and initiate the claims process for the beneficiary.
Upon the death of a variable annuity owner, the primary responsibility of the representative is to facilitate the claims process. This involves notifying the insurance company and helping the beneficiary initiate the necessary paperwork to receive the death benefit. The death benefit is often paid directly to the beneficiary and bypasses probate.
Why the other options are wrong
- A. Liquidating immediately might not be in the beneficiary's best interest; they have options for payout.
- C. A 1035 exchange is a tax-free exchange of one annuity for another by the same owner; it's not applicable immediately upon death, as the beneficiary first needs to receive the death benefit.
- D. Annuity contracts are not simply transferred; a death benefit claim process must be followed, and the beneficiary has payout options.
Variable Annuity Death Benefit Process
Upon the death of a variable annuity owner, the registered representative must notify the insurance company to initiate the claims process for the designated beneficiary.
- Death benefit typically bypasses probate.
- Beneficiaries have payout options (lump sum, annuitization, stretch IRA).
- The value of the death benefit may be higher than the current account value.
Memory trick: Death's Door? Declare to Insurer, Deploy Docs.