CH 5: Annuities

An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n) A Equity Indexed Annuity. B Variable Annuity. C Flexible Annuity. D Immediate Annuity.

A Equity Indexed Annuity.

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

D The beneficiary

Which of the following provisions in annuity contracts allow the owner to surrender the annuity if interest rates drop to a specified level? A Annuitization B Bail-out C Surrender D Nonforfeiture

B bail-out

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

D single payment or periodic payments

Which of the following is true regarding a waiver of a surrender charge on an annuity contract? A The charge can only be waived if the annuitant needs the funds for medical expenses. B The surrender charge will be applied to all premature surrenders. C The surrender charge waiver only applies to immediate annuity. D The charge may be waived if the annuitant is confined to a long-term care facility for at least 30 days.

D The charge may be waived if the annuitant is confined to a long-term care facility for at least 30 days.

Underlying assets for variable annuity contracts must be maintained in what type of account? A General account B Fiduciary account C Securities account D Separate account

D separate account

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

A creating an estate

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

A it may last for the lifetime of the annuitant

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.

A Only for the life of the annuitant.

The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called A Joint life annuity. B Life income with period certain. C Life income with refund. D Joint and survivorship.

B life income with period certain

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

B when the income payments begin

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 Refund life B Variable annuity C Annuity certain D Fixed annuity

C annuity certain

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 Flexible payment annuity B Deferred interest annuity C Immediate annuity D Variable annuity

C immediate annuity

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.

C the annuitant must be a natural person

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

fixed amount

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.

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

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 Cash refund B Installments for a fixed period C Installments for a fixed amount D Installment refund

B installments for a fixed-period

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

B pay-in period

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

C death benefits

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

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

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

B it does not guarantee that the entire principal amount will be paid out

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

D the annuitant cannot be the same person as the annuity owner

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

A annuitization period

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 Name another annuitant. B Live at least to his life expectancy. C Die before his life expectancy. D Name a beneficiary.

B live at least to his life expectancy

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.

B nothing; the payments will cease

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

D they have a guaranteed minimum interest rate

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.

C the payments will stop when the annuitant dies

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

D deferred

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 state government. B The cash value will be paid to the annuitant's estate. C The premium value will be paid to the annuitant's estate. D All benefits will be forfeited.

B the cash value will be paid to the annuitants estate