Chapter 6- Annuities: Structure, Design, Funding, Premiums, Payments

Withdrawal charge

A penalty imposed by the insurer if a contract owner partially or entirely surrenders a deferred prior to annuitization is called a: Select one: a. Payout option b. Withdrawal charge c. Funding method d. Nonforfeiture option LH92059 Feedback Your answer is incorrect A penalty imposed by the insurer if a contract owner partially or entirely surrenders a deferred prior to annuitization is called a withdrawal or surrender charge.

60-year old male

ABC Insurer sells a $500,000 single premium immediate annuity to four different people. Who receives the largest check? The person with the shortest life expectancy will receive the highest annuity check.

A single premium

Immediate annuities must be purchased with: Immediate annuities must be purchased with a single premium.

SPIA

In which of the following types of annuities does the payment period begin immediately after the annuity is purchased? Immediate annuities are those where the payout period begins immediately after the annuity is purchased. A single premium payment is used to purchase this kind of annuity. _SPIA_ stands for single premium immediate annuity.

Men live more dangerously so their premiums are higher.

Which of the following is not true about the impact of the annuitant's sex on the premium payments? Men's premiums are typically lower than women's because their life expectancy is shorter. The dangers of their lifestyle may impact life insurance premiums, but do not impact the annuity premiums.

Women typically receive lower annuity payments.

Which of the following statements regarding the amount of each annuity payment is true? Fixed annuities (annuities with a fixed interest rate) pay fixed annuity payments, and variable annuities pay variable annuity payments. The older the annuitant is, the more likely the annuitant is to die, so the higher the annuity payment. This is the reverse logic of life insurance: the longer the annuitant is expected to live, the lower the annuity payment. Because women are expected to live longer than men, the annuity payment for women will be lower.

Period certain

Which annuity payout option has a distinct beginning and ending? A period certain has a distinct beginning and ending, so if income is needed for life, a life annuity is more suitable.

Joint and survivor

Which of the following annuity payout options pays benefits to two annuitants, where payments will be made to the surviving annuitant for life upon the first annuitant's death? A joint and survivor annuity payout option pays annuity benefits to two annuitants. If either of the two annuitants dies, payments will be made to the surviving annuitant for life. Payments stop upon the death of the surviving annuitant.

Refund life

Adrian bought an annuity for herself. After a few years, she begins to receive annuity payments. When she dies, her best friend will receive the balance of principal. Which of the following annuities best describes the annuity Adrian bought? The refund life annuity pays for the entire life of the annuitant. If the annuitant dies before the premiums in the annuity have been paid out, then a beneficiary will receive the balance.

April 1st

Alex purchases a single premium immediate annuity on March 1. If he elects monthly annuity payments, when will he receive his first annuity payment? With an SPIA, the first payment begins one payment period from the date the annuity was purchased. Therefore, if payments are scheduled to be made monthly, the first payment will be made one month after the annuity purchase date.

$288,000

Collin buys a fixed deferred annuity. Upon annuitization, he chooses the life annuity with period certain payout option. Collin will receive $3,000 each month with a 15-year certain period. If Collin dies after seven years, how much will his beneficiary receive? Collin's beneficiary will receive eight years worth of $3,000 monthly annuity payments. This works out to $288,000 (15 _ 7 = 8 years remaining in the period certain. $3,000 _ 12 months per year = $36,000. $36,000 _ 8 = $288,000).

Annuitant's marital status

All of the following are factors that determine the annuity payout amount, EXCEPT: The annuitant's marital status is not a factor used to determine the amount of annuity payout. Factors that affect the amount are: total annuity cash accumulation; payout guarantees (if any); annuity payment frequency; loading; assumed interest rate; and the annuitant's age and sex.

Any balance in the annuity fund after the period certain ends is refunded to a beneficiary.

All of the following are true of the life with period certain annuity payout option, EXCEPT: Any balance in the annuity fund after the period certain ends, is retained by the insurer.

Joint and 2/3 life annuity

Annette and John are married and have an annuity in which payments will reduce to 2/3 of the original amount upon the death of the first annuitant. What annuity do they have? The joint and 2/3 life annuity will pay the full benefit amount while both annuitants are alive. Upon the death of the first annuitant, the annuity benefit will reduce to 2/3 that of the original payment amount.

Single

What type of premium is used to purchase an immediate annuity? A single premium is used to purchase an immediate annuity.

Annuitant's ethnicity

Many factors are taken into consideration when determining the premiums for an annuity. These factors include all but: The annuitant's ethnicity is not a factor when determining premiums.

Single

Of the following types of premiums, which is used to buy an immediate annuity? Select one: a. Level b. Single c. Flexible d. None of the above LH92003 Feedback Your answer is correct A single premium is used to purchase an immediate annuity.

Each receives the same amount

Of the following, who will receive the largest monthly annuity benefit from a $100,000 single premium immediate annuity with 5-year period certain: Jane, age 40; Paul, age 40; or William, age 70? With a period certain annuity payout option, the monthly periodic benefit is based on the amount of the annuity upon annuitization and the length of the period certain. The annuitant's age and sex are not factors.

Ages and sex

Premiums for a joint and survivor life annuity are based on the annuitants': Premiums for a joint and survivor life annuity are based on the ages and sex of the annuitants.

Age, sex, and amount of money in the annuity upon annuitization

The amount of each monthly payment for a straight life annuity is based on the annuitant's: For life annuities, the amount of each periodic payment is based on the annuitant's age and sex and the amount of money in the annuity upon annuitization.

Cash refund and installment refund

What are the two types of refund life annuity payout options? The two types of refund life annuity payout options are cash refund and installment refund.

Period certain option

Which of the following is not a payout option that pays the annuitant for life? Unlike a life annuity, the period certain option does not guarantee income for life. Instead, it provides income for a fixed time period, such as 10 or 15 years.

Straight life annuity

Nick is single and retired at the age of 55. He does not have any dependent family members. Nick wants to purchase an annuity that will give him the largest monthly income. What annuity would you recommend to him? The straight life annuity provides the largest amount of periodic income because it does not have any _guarantees._

A beneficiary will receive any balance of the annuity upon the annuitant's death.

All of the following are true of the straight life income option for annuities, EXCEPT: The annuitant receives annuity payments for their entire life. Upon the annuitant's death, the annuity payments stop. The insurer retains any balance on the annuity.

Immediate; deferred

The two broad categories of annuities are ________ and ________ based on when the annuity phase begins. The two broad types of annuities are immediate and deferred, which refer to when the annuity phase (payout period) begins.

Man, age 70

Of the following, who will receive the largest monthly annuity benefit from a $100,000 single premium immediate annuity? Women's life expectancies are longer than men's, so men will receive higher monthly annuity benefits. People in advanced ages are closer to death, so their income benefit will be larger. Therefore, the 70-year old man will receive the largest monthly annuity benefit.

Deferred annuities must be purchased with multiple premium payments.

All of the following are true regarding deferred annuities, EXCEPT: Deferred annuities can be purchased with a single premium or with multiple premiums.

Straight life

Jacob begins to receive periodic annuity payments. Upon Jacob's death all annuity payments cease and the balance in the annuity is retained by the insurer. What annuity does Jacob have? The straight life annuity pays for the entire life of the annuitant only. If the annuitant dies before the balance of the annuity is paid out, that sum is forfeited to the insurer.

SPIA

Jodeen purchases an annuity with a $40,000 lump-sum payment on July 15. She begins to receive monthly annuity payments on August 15. What type of annuity did she buy? Jodeen purchased a single premium immediate annuity (SPIA). A single premium is used to purchase the immediate annuity, and the payment period begins one payment period from the date the annuity was purchased.

Cash Refund option

Lucas purchased an annuity for himself. He begins to receive annuity payments. If the amount of premium in the annuity has not been paid out upon his death, then his grandson will receive the balance. What type of annuity does Lucas have? The cash refund option is an annuity that pays for the entire life of the annuitant. If the annuitant dies before the premiums in the annuity have been paid out, then a beneficiary will receive the balance.