Annuities

All of the following statements about equity index annuities are correct EXCEPT A The interest rate is tied to an index such as the Standard & Poor's 500. B They invest on a more aggressive basis aiming for higher returns. C The annuitant receives a fixed amount of return. D They have a guaranteed minimum interest rate.

The annuitant receives a fixed amount of return.

What is the penalty for excessive contributions to an IRA? A 4% B 6% C 10% D 15%

6%

What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? A Installment refund B Joint and survivor C Pure life D Life with guaranteed minimum

Pure life

In general terms, IRA contributions are A Partially tax deductible depending on the income level. B Tax deductible. C Deducted based on the income level. D Never tax deductible.

Tax deductible.

An insurance company forwards fixed annuity premiums to their general account, where the money is invested. The guaranteed minimum interest is set at 2.5%. During an economic downswing, the investments only drew 2%. What interest rate will the insurer pay to its policyholders? A 2% B 2.5% C 3% D Whatever interest rate the company deems appropriate

2.5%

All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT A The insurer determines the amount for each payment. B It is a life contingency option. C It will pay the benefit only for a designated period of time. D The payments are not guaranteed for life.

It is a life contingency option.

All of the following information about a customer must be used in determining annuity suitability EXCEPT A Beneficiary's age. B Tax status. C Financial experience. D Annual income.

Beneficiary's age.

Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits? A $50,000 B $62,500 C $75,000 D Nothing

$50,000

The minimum interest rate on an equity indexed annuity is often based on A An index like Standard & Poor's 500. B The returns from the insurance company's separate account. C The annuitant's individual stock portfolio. D The insurance company's general account investments.

An index like Standard & Poor's 500.

A man purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it? A Variable B Immediate C Flexible D Deferred

Immediate

Which of the following is NOT true regarding the accumulation period of an annuity? A It is the period during which the annuity payments earn interest. B It is the period over which the owner makes payments into an annuity. C It is also known as the pay-in period. D It would not occur in a deferred annuity.

It would not occur in a deferred annuity.

If the annuitant dies during the accumulation period, who will receive the annuity benefits? A The annuitant's estate B The beneficiary C The annuity owner D The insurance company

The beneficiary

Which of the following is true regarding a market value adjusted annuity? A The insurer bears all the market risk of changing interest rates. B There are no penalties for a premature surrender of the annuity. C It provides a level benefit payment. D The owner is guaranteed a fixed interest rate for a specific period of time.

The owner is guaranteed a fixed interest rate for a specific period of time.

All of the following statements are true of a nonqualified retirement plan EXCEPT A Increases of funds are not taxed until received. B Contributions grow tax deferred. C They do not qualify for special tax treatment by the IRS. D Contributions are tax exempt.

Contributions are tax exempt.

After three years of making payments into a flexible premium deferred annuity, the owner decides to surrender the annuity. The insurer returns all the premium payments to the owner, except for a predetermined percentage. What is this percentage called? A Termination penalty B Bail-out charge C Inflation adjustment D Surrender charge

Surrender charge

Equity indexed annuities A Are more risky than variable annuities. B Are security instruments. C Invest conservatively. D Seek higher returns.

Seek higher returns.

The advantage of qualified plans to employers is A Tax free earnings. B Do not have to provide lump sum payments. C Taxable contributions. D Tax deductible contributions.

Tax deductible contributions.

Which of the following is a short-term annuity that limits the amounts paid to a certain fixed period or until a certain fixed amount is liquidated? A Variable annuity B Annuity certain C Fixed annuity D Refund life

Annuity certain

Which of the following products requires a securities license? A Fixed annuity B Equity Indexed annuity C Deferred annuity D Variable annuity

Variable annuity

Which of the following is NOT true regarding the Life with Guaranteed Minimum annuity settlement option? A It does not guarantee that the entire principal amount will be paid out. B It is a life contingency option. C The beneficiary receives the remainder of the principal amount upon the annuitant's death. D Payments can be made in installments and as a single cash refund.

It does not guarantee that the entire principal amount will be paid out.

Why is an equity indexed annuity considered to be a fixed annuity? A It has a fixed rate of return. B It is not tied to an index like the S&P 500. C It has a guaranteed minimum interest rate. D It has modest investment potential.

It has a guaranteed minimum interest rate.

Which of the following is a feature of a variable annuity? A Interest rate is guaranteed. B Securities license is not required. C Benefit payment amounts are not guaranteed. D Payments into the annuity are kept in the company's general account.

Benefit payment amounts are not guaranteed.

Which of the following is NOT a legitimate use of annuities by businesses? A Providing deferred compensation for employees B Providing an investment vehicle C Creating a tax shelter D Funding employee retirement plans

Creating a tax shelter

If an annuitant dies before annuitization occurs, what will the beneficiary receive? A Cash value of the plan B Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount C Either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount D Amount paid into the plan

Either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount

An agent selling variable annuities must be registered with A Department of Insurance. B The Guaranty Association. C SEC. D FINRA.

FINRA.

If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined? A It is a percentage of the cash value and decreases over time. B It is always 7% of the cash value. C It is a flat fee determined by the annuity owner when the annuity is purchased. D It will increase as the accumulation period increases.

It is a percentage of the cash value and decreases over time.

A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy? A Joint limited annuity B Joint life C Joint and survivor D Life with period certain

Joint life

Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive A The remainder of the principal. B Nothing; the payments will cease. C Guaranteed minimum benefit. D The amount paid into the annuity.

Nothing; the payments will cease.

Under a pure life annuity, an income is payable by the company A Only for the life of the annuitant. B Until the principal and interest are exhausted. C For a guaranteed period of time, whether or not the annuitant survives to the end of that period. D For as long as either the annuitant or a named beneficiary is alive.

Only for the life of the annuitant.

Which two terms are associated directly with the way an annuity is funded? A Immediate or deferred B Renewable or convertible C Single payment or periodic payments D Increasing or decreasing

Single payment or periodic payments

Which of the following types of annuities will generally provide the highest monthly income? A Straight life B Joint and survivor C Installment refund D Life with a 10-year period certain

Straight life

Which of the following best describes what the annuity period is? A The period of time during which accumulated money is converted into income payments B The period of time from the accumulation period to the annuitization period C The period of time during which money is accumulated in an annuity D The period of time from the effective date of the contract to the date of its termination

The period of time during which accumulated money is converted into income payments

How are contributions to a tax-sheltered annuity treated with regards to taxation? A They are never taxed. B They are taxed as income for the employee. C They are taxed as income for the employee, but are tax free upon withdrawal. D They are not included as income for the employee, but are taxable upon distribution.

They are not included as income for the employee, but are taxable upon distribution.

Which of the following is NOT true regarding Equity Indexed Annuities? A They have guaranteed minimum interest rates. B They are less risky than variable annuities. C They earn lower interest rates than fixed annuities. D The insurance company keeps a percentage of the returns.

They earn lower interest rates than fixed annuities.

In general terms, IRA contributions are A Never tax deductible. B Partially tax deductible depending on the income level. C Tax deductible. D Deducted based on the income level.

Tax deductible.

A 403(b) plan, commonly referred to as a TSA, is available to be used by A Government workers. B Postal employees. C Self-employed persons. D Teachers and not-for-profit organizations.

Teachers and not-for-profit organizations.

The main difference between immediate and deferred annuities is A How the annuity is purchased. B The number of insureds. C The amount of each payment. D When the income payments begin.

When the income payments begin.

An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n) A 403(b) Plan (TSA). B Keogh Plan. C Roth IRA. D SEP.

403(b) Plan (TSA).

Who can make a fully deductible contribution to a traditional IRA? A Anybody: all IRA contributions are fully deductible regardless of income level B Someone making contributions to an educational IRA C A person whose contributions are funded by a return on investment D An individual who has earned income

An individual who has earned income

Under which installments option does the annuitant select the amount of each payment, and the insurer determines how long they will pay benefits? A Fixed amount B Variable period C Variable amount D Fixed period

Fixed amount

According to the nonforfeiture law, if the owner decides to surrender a deferred annuity prior to annuitization, the owner is entitled to which of the following? A Full premium refund without any charges B Guaranteed surrender value C No payments D Annuity dividends

Guaranteed surrender value

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits? A Variable annuity B Flexible payment annuity C Deferred interest annuity D Immediate annuity

Immediate annuity

If an annuitant selects the straight life annuity settlement option, in order to receive all of the money out of the contract, it would be necessary to A Live at least to his life expectancy. B Die before his life expectancy. C Name a beneficiary. D Name another annuitant.

Live at least to his life expectancy.

If a beneficiary is NOT named for annuity benefits, to which entity will the benefit be paid? A The insurance company B The annuitant's estate C The next of kin D The state government

The annuitant's estate

When a fixed annuity owner pays pays a monthly annuity premium to the insurance company, where is this money placed? A Forwarded to an investor B Each contract's separate account C The annuity owner's account D The insurance company's general account

The insurance company's general account

How are contributions to a tax-sheltered annuity treated with regards to taxation? A They are taxed as income for the employee. B They are taxed as income for the employee, but are tax free upon withdrawal. C They are not included as income for the employee, but are taxable upon distribution. D They are never taxed.

They are not included as income for the employee, but are taxable upon distribution.

Which of the following is TRUE for both equity indexed annuities and fixed annuities? A Both are considered to be more risky than variable annuities. B They invest on a conservative basis. C They have a guaranteed minimum interest rate. D They are both tied to an equity index.

They have a guaranteed minimum interest rate.

All of the following are true regarding a qualified annuity EXCEPT A Employer contributions are tax deductible as ordinary business expense. B Funds accumulate on a tax-deferred basis. C Employer contributions are not counted as income to the employee while the plan is in force. D At distribution, all amounts received by the employee are tax free.

At distribution, all amounts received by the employee are tax free.

Which of the following is NOT true about a joint and survivor annuity benefit option? A Payments stop after the first death among the annuitants. B A period certain option may be included. C This option guarantees income for two or more recipients. D The surviving annuitant may receive reduced payments.

Payments stop after the first death among the annuitants.

Which of the following is NOT true regarding the annuitant? A The annuitant receives the annuity benefits. B The annuitant must be a natural person. C The annuitant cannot be the same person as the annuity owner. D The annuitant's life expectancy is taken into consideration for the annuity.

The annuitant cannot be the same person as the annuity owner.

The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true? A A corporation can be an annuitant as long as the beneficiary is a natural person. B The contract can be issued without an annuitant. C The annuitant must be a natural person. D A corporation can be an annuitant as long as it is also the owner.

The annuitant must be a natural person.

An individual buys a flexible premium deferred life annuity with 20 year period certain. What would his beneficiary receive if he died 5 years after beginning the annuity phase? A Payments for 15 years B Payments for 20 years C Payments for life D Nothing

Payments for 15 years

A tax-sheltered annuity is a special tax-favored retirement plan available to A Certain groups depending on factors such as race, gender, and age. B Certain groups of employees only. C Anyone. D Certain age groups only.

Certain groups of employees only.

Which of the following is NOT a legitimate use of annuities by businesses? A Providing an investment vehicle B Creating a tax shelter C Funding employee retirement plans D Providing deferred compensation for employees

Creating a tax shelter

A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select? A Joint and survivor B Joint annuity C Cash refund annuity D Straight life

Joint and survivor

Which of the following is another term for the accumulation period of an annuity? A Pay-in period B Premium period C Liquidation period D Annuity period

Pay-in period

Who bears all of the investment risk in a fixed annuity? A The insurance company B The owner C The beneficiary D The annuitant

The insurance company

All of the following are true of an annuity owner EXCEPT A The owner has the right to name the beneficiary. B The owner is the party who may surrender the annuity. C The owner must be the party to receive benefits. D The owner pays the premiums on the annuity.

The owner must be the party to receive benefits.

Which of the following will NOT be an appropriate use of a deferred annuity? A Accumulating funds in an IRA B Funding a child's college education C Creating an estate D Accumulating retirement funds

Creating an estate

All of the following statements are true regarding installments for a fixed amount EXCEPT A This option pays a specific amount until the funds are exhausted. B The annuitant may select how big the payments will be. C The payments will stop when the annuitant dies. D Value of the account and future earnings will determine the time period for the benefits.

The payments will stop when the annuitant dies.

According to the nonforfeiture law, if the owner decides to surrender a deferred annuity prior to annuitization, the owner is entitled to which of the following? A No payments B Annuity dividends C Full premium refund without any charges D Guaranteed surrender value

Guaranteed surrender value

All of the following employees may use a 403(b) plan for their retirement EXCEPT A A part-time classroom aide. B The vice president of a charitable organization. C The CEO of a private corporation. D A school bus driver.

The CEO of a private corporation.

Which of the following is TRUE regarding variable annuities? A A person selling variable annuities is required to have only a life agent's license. B The annuitant assumes the risks on investment. C The funds are invested in the company's general account. D The company guarantees a minimum interest rate.

The annuitant assumes the risks on investment.

The annuity owner dies during the accumulation period without naming a beneficiary. Annuity's cash value exceeds premiums paid. Which of the following is TRUE? A The cash value will be paid to the annuitant's estate. B The premium value will be paid to the annuitant's estate. C All benefits will be forfeited. D The cash value will be paid to the state government.

The cash value will be paid to the annuitant's estate.

What license or licenses are required to sell variable annuities? A Only a securities license B No license is required C Both a life insurance license and a securities license D Only a life insurance license

Both a life insurance license and a securities license

Fixed annuities provide all of the following EXCEPT A Future income payments. B Hedge against inflation. C Equal monthly payments for life. D Minimum guaranteed rate of interest.

Hedge against inflation.

Under which of the following annuity options does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be? A Installments for a fixed amount B Installment refund C Cash refund D Installments for a fixed period

Installments for a fixed period

Which of the following is TRUE regarding the accumulation period of an annuity? A It is a period of time during which the beneficiary receives income B It is limited to 10 years. C It is a period during which the payments into the annuity grow tax deferred. D It is also referred to as the annuity period.

It is a period during which the payments into the annuity grow tax deferred.

Which of the following is TRUE regarding the annuity period? A During this period of time the annuity payments grow interest tax deferred. B It is also referred to as the accumulation period. C It is the period of time during which the annuitant makes premium payments into the annuity. D It may last for the lifetime of the annuitant.

It may last for the lifetime of the annuitant.

In a fixed annuity, which of the following is true regarding the guaranteed interest rate on the investment? A The annuitant will receive the higher of either the guaranteed minimum rate or current rate. B The annuitant will always receive the current interest rate. C The annuitant will receive the lower of either the guaranteed minimum rate or current rate. D The annuitant will only receive the guaranteed minimum specified in the contract.

The annuitant will receive the higher of either the guaranteed minimum rate or current rate.

The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE? A The money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary. B The beneficiary will receive the greater of the money paid into the annuity or the cash value. C The owner's estate will receive the money paid into the annuity. D The insurance company will retain the cash value and pay back the premiums to the owner's estate.

The beneficiary will receive the greater of the money paid into the annuity or the cash value.

Which of the following is NOT fundable by annuities? A A person's retirement B Estate liquidation C Death benefits D Cash accumulation for any reason

Death benefits

What qualifies an individual to contribute to an IRA? A Investment income B Retirement income C Earned income D Any income

Earned income

If a contract provides a set amount of income for two or more persons with the income stopping upon the first death of the insured, it is called a A Deferred annuity. B Pure annuity. C Joint life annuity. D Joint and survivor annuity.

Joint life annuity.

Which of the following statements is INCORRECT regarding IRAs? A A nonworking spouse is eligible to contribute to a separate IRA account. B Anyone with earned income may open a traditional IRA. C Accumulated contributions grow tax deferred. D Married couples are required to purchase a jointly owned IRA.

Married couples are required to purchase a jointly owned IRA.

Which of the following is NOT true regarding the accumulation period of an annuity? A It is also known as the pay-in period. B It would not occur in a deferred annuity. C It is the period during which the annuity payments earn interest. D It is the period over which the owner makes payments into an annuity.

It would not occur in a deferred annuity.

A couple near retirement is planning for their golden years. They want to make sure that their retirement annuity provides monthly benefits for the rest of their lives. Should one of them die, the other would still like to continue receiving benefits. Which settlement option should they choose? A Joint and Survivor B Joint life C Life with period certain D Straight life

Joint and Survivor

When an annuity is written, whose life expectancy is taken into account? A Annuitant B Beneficiary C Life expectancy is not a factor when writing an annuity. D Owner

Annuitant

Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income? A Liquidation period B Depreciation period C Annuitization period D Pay-out period

Depreciation period

An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin after 1 year since the annuity was purchased. What type of annuity is it? A Fixed B Flexible premium C Immediate D Deferred

Deferred

What determines the penalty for surrendering a market value adjusted annuity prematurely? A The flat fee determined by an index of interest gains and the amount of time the annuity would take to mature B There are no penalties imposed for surrendering annuities prematurely. C The guaranteed minimum interest rate provided in the contract D The current interest rate at the time of surrender

The current interest rate at the time of surrender

In an annuity, the accumulated money is converted into a stream of income during which time period? A Conversion period B Annuitization period C Payment period D Amortization period

Annuitization period

All of the following are true of an annuity owner EXCEPT A The owner is the party who may surrender the annuity. B The owner must be the party to receive benefits. C The owner pays the premiums on the annuity. D The owner has the right to name the beneficiary.

The owner must be the party to receive benefits.

Which of the following is NOT true regarding an annuity certain? A It will pay until a fixed amount is liquidated. B There are no life contingencies. C It is a short-term annuity. D Benefits stop at the annuitant's death.

Benefits stop at the annuitant's death.

A tax-sheltered annuity is a special tax-favored retirement plan available to A Anyone. B Certain age groups only. C Certain groups depending on factors such as race, gender, and age. D Certain groups of employees only.

Certain groups of employees only.

Which of the following is NOT true regarding the accumulation period of an annuity? A It would not occur in a deferred annuity. B It is the period during which the annuity payments earn interest. C It is the period over which the owner makes payments into an annuity. D It is also known as the pay-in period.

It would not occur in a deferred annuity.