Life Quiz - 05

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

a. Pay-in period The accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity.

When a fixed annuity owner pays a monthly annuity premium to the insurance company, where is this money placed? a. The insurance company's general account b. Forwarded to an investor c. Each contract's separate account d. The annuity owner's account

a. The insurance company's general account Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.

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

b. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount If an annuitant dies before annuitization, the beneficiary will receive either the amount paid into the plan or the cash value of the plan, whichever is greater.

Which of the following best describes a bail-out provision? a. It decreases the annuity surrender value. b. It allows the owner to surrender the annuity without a charge. c. It waives the surrender charge for the annuitants confined to a long-term care facility. d. It allows the owner to receive a higher interest rate at certain timeframe.

b. It allows the owner to surrender the annuity without a charge. Some annuity contracts contain a bail-out provision. This provision allows the owner to surrender the annuity without charge if interest rates drop a specified amount within a certain timeframe.

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. The contract can be issued without an annuitant. b. The annuitant must be a natural person. c. A corporation can be an annuitant as long as it is also the owner. d. A corporation can be an annuitant as long as the beneficiary is a natural person.

b. The annuitant must be a natural person. Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.

What happens if a deferred annuity is surrendered before the annuitization period? a. Deferred annuities cannot be surrendered prior to the annuitization period b. The owner will receive the surrender value of the annuity, c. The owner will only receive a refund of premium. d. The insurer can only apply the surrender value toward another annuity.

b. The owner will receive the surrender value of the annuity, If a deferred annuity is surrendered prior to annuitization, the surrender value of the annuity is guaranteed according to the nonforfeiture provision

When an annuity is written, whose life expectancy is taken into account? a. Life expectancy is not a factor when writing an annuity. b. Owner c. Annuitant d. Beneficiary

c. Annuitant The annuitant receives payments from an annuity and is the person whose life expectancy is considered when writing the contract. The annuitant and annuity owner are often the same person but do not have to be.

Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income? a. Pay-out period b. Liquidation period c. Depreciation period d. Annuitization period

c. Depreciation period The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period.

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.

c. It has a guaranteed minimum interest rate. While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

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. With a fixed annuity, the insurer invests the principal and gives the annuitant a guaranteed interest rate based on a minimum rate specified in the annuity, or current interest rate, whichever is higher.

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 Deferred annuities may be purchased with either a single lump sum or periodic payments, but they do not begin the income payments until sometime after 1 year from the date of purchase.

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

d. It is a period during which the payments into the annuity grow tax deferred. The "accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.

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.

d. It would not occur in a deferred annuity. The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity).

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 20 years b. Payments for life c. Nothing d. Payments for 15 years

d. Payments for 15 years With any period certain, death of the annuitant within the stated period will provide payments to the beneficiary only for the remainder of the period certain.

If a beneficiary is NOT named for annuity benefits, to which entity will the benefit be paid? a. The next of kin b. The state government c. The insurance company d. The annuitant's estate

d. The annuitant's estate If an annuitant dies during the accumulation period, the beneficiary is paid either the cash value of the policy or the amount of premiums paid, whichever is the larger amount. If a beneficiary is not named, the money will be paid to the annuitant's estate.