Series 65: Unit 24 Quiz 1

One of your customers would like to buy a life insurance policy that has no participation in the stock market, has no cash value, and provides coverage for 20 years. You should recommend A. a 20-pay life insurance policy. B. a variable annuity with a death benefit. C. a 20-year term life policy. D. a whole life insurance policy.

A 20-yr term life policy

A terminally ill client wishing to access a portion of the cash value in his whole life insurance policy while still providing a death benefit for his beneficiaries could do so by A. converting it into a term policy B. surrendering the policy for its cash value C. selling the policy in a viatical settlement D. taking out a policy loan

Taking out a policy loan

Which of the following is not a type of life insurance policy? A. Endowment policy B. Term to 65 policy C. Universal life policy D. Variable annuity policy

Variable annuity policy

Your client purchased an index annuity from you last year with an investment of $100,000. The particular index tied to this product had an annual return of -4%. If the participation rate is 90% with a cap of 5% and no annual minimum guarantee, the value of the account would be A. $96,000. B. $100,000. C. $103,600. D. $96,400.

$100k

An owner of an equity index annuity would be wise to use the high-water crediting method if the underlying index was expected to A. change its objective. B. remain steady. C. be volatile. D. decline.

Be volatile

A 35-year-old client purchased a variable life insurance policy. Under current regulations, the maximum sales charge permitted over the life of the policy is A. 8.5% of total premiums over the life of the plan. B. 9% of premium per year, computed over a 20-year period. C. 8.5% per premium payment. D. 9% per premium payment.

9% of premium per yr, computed over a 20-yr period

A client has been contributing to a periodic payment annuity for 20 years. The M&E charge is 1.25% per year. What happens to that charge when the client annuitizes at attained age 68? A. It increases because the client's mortality risk is higher at the older age B. It continues C. It continues but at a reduced rate D. It ceases

It ceases

A 64-year-old woman wishes to withdraw funds from her nonqualified single premium deferred variable annuity purchased a number of years ago. The withdrawal would be A. taxed as capital gain. B. subject to a 10% penalty unless annuitized. C. subject to the required minimum distribution rules. D. taxed as ordinary income

Taxed as ordinary income

An investor purchases a single premium deferred index annuity with a 6% bonus feature. The premium was $100,000. The annuity has an 80% participation rate with a 10% cap. If the underlying index increased by 15%, the account's value at the end of the year would be closest to A. $116,600. B. $118,720. C. $116,000. D. $110,000.

$116,600

Your 55-year-old client owns a nonqualified variable annuity. He originally invested $50,000 4 years ago. The annuity has grown to a value of $60,000. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? A. $3,000.00 B. $0.00 C. $4,500.00 D. $4,000.00

$4k

Which of the following is considered an advantage of annuitization? A. A fixed, level periodic payment tends to lose buying power over time due to inflation. B. It guarantees income that will last for the client's lifetime. C. Payments under a variable annuity could be reduced if there is a declining market. D. Once annuitized, the client's draw from the annuity is limited to the annuity payment.

It guarantees income that will last for the client's lifetime

The owner of a fixed annuity is protected against A. purchasing power risk. B. loss of money due to early death. C. inflation risk. D. longevity risk.

Longevity risk

The difference between a fixed annuity and a variable annuity is that the variable annuity 1. offers a guaranteed return 2. offers a payment that may vary in amount 3. will always pay out more money than the fixed annuity 4. attempts to offer protection to the annuitant from inflation

Offers a payment that may vary in amount and attempts to offer protection to the annuitant from inflation

A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client? A. Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis B. Capital gains taxation on the earnings withdrawn in excess of the owner's basis C. A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn D. A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis

Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis

The value of a variable annuity during the accumulation period is determined by A. the total payments made by the evaluation date B. the value of the securities in the general account of the insurance company C. the number of accumulation units owned multiplied by the value of each unit D. the number of accumulation units owned multiplied by the number of payments made into the account

The number of accumulation units owned multiplied by the value of each unit

Which of the following statements correctly describes the relationship between annuity units and their value during the payout period of a variable annuity? A. the number of units varies, the unit value varies. B. the number of units varies, the unit value remains constant. C. the number of units remains constant, the unit value varies. D. the number of units remains constant, the unit value remains constant.

The number of units remains constant, the unit value varies

A widowed customer with no children has a portfolio invested in mutual funds valued at $250,000. The portfolio generates a monthly income of $1,600, an amount that exceeds her living expenses by $300. The investment portfolio is her sole source of income. Her agent recommends she sell $30,000 worth of her mutual funds and purchase a deferred variable annuity to take advantage of the tax deferral and death benefit features. This recommendation is A. suitable because it provides diversification B. suitable because it offers a growth opportunity with a death benefit for a portion of her holdings C. suitable because it provides tax deferral features D. unsuitable

Unsuitable

Which of the following is designed primarily as a retirement vehicle to help protect contract owners from a decline in purchasing power? A. Variable annuities B. Life-paid-up-at-age-65 life insurance C. Retirement income life insurance D. Flexible premium fixed annuity

Variable annuities

An individual is deciding between a flexible premium variable life contract and a scheduled premium variable life contract. If she is concerned about maintaining a minimum death benefit for estate liquidity needs, she should choose A. the flexible premium policy because the contract's face amount cannot be less than a predetermined percentage of cash value B. the flexible premium policy because earnings of the contract directly affect the face value of the policy and earnings can never be negative C. the scheduled premium policy because earnings do not affect the contract's face amount D. the scheduled premium policy because the contract is issued with a minimum guaranteed face amount

The scheduled premium policy b/c the contract is issued w/ a minimum guaranteed face amount

Which of the following statements is true concerning variable life separate account valuation? A. Unit values are computed daily and cash values are computed monthly. B. Unit values are computed monthly and cash values are computed daily. C. Unit values are computed weekly and cash values are computed monthly. D. Unit values are computed monthly and cash values are computed weekly.

Unit values are computer daily and cash values are computed monthly

A customer purchased a variable annuity from an agent 5 years ago with an initial investment of $200,000. The annuity's surrender fee will expire in year 7, which coincides with the customer's anticipated need for the funds. In the 5th year of the contract, the value of the annuity increased from $300,000 to $375,000. The agent notices that the general market is on the decline and recommends she enter a 1035 exchange of the variable contract for another, thus increasing her death benefit and locking it in at a higher minimum. This recommendation is A. suitable because of the increased death benefit B. unsuitable unless the customer agrees with the recommendation C. suitable because 1035 exchanges have no adverse tax consequences D. unsuitable because of surrender fees

Unsuitable b/c of the surrender fees