UNIT #15: Insurance-Based Products
Variable annuities A) provide a guaranteed minimum annuity payout B) may invest only in money market mutual funds C) may have 20 or more subaccount investment options D) generally provide more security of principal than fixed annuities
C *Some variable annuity separate accounts have 50 or more subaccounts to choose from. There are no guarantees as far as the amount of payout; that is why it is called a variable annuity.
A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. How is the distribution taxed? 1. The entire amount is taxed as ordinary income. 2. The growth portion is taxed as ordinary income. 3. The growth portion is taxed as a capital gain. 4. The growth portion is subject to a 10% penalty. A) II and IV B) II and III C) III and IV D) I and IV
A) 2 & 4 *On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). In this case, the investor is taking a lump-sum distribution before reaching age 59½ and must pay an additional 10% penalty on the taxable amount.
Which of the following is considered an advantage of annuitization? A) It guarantees income that will last for the client's lifetime. B) A fixed, level periodic payment tends to lose buying power over time due to inflation. C) Once annuitized, the client's draw from the annuity is limited to the annuity payment. D) Payments under a variable annuity could be reduced if there is a declining market.
A *Annuities offer a guarantee of income that will last for a client's lifetime. The other statements, while true, represent disadvantages of annuitization. Annuitization does limit liquidity and flexibility.
The return that will be earned over the life of a fixed annuity A) is tied to a portfolio of common stocks selected by the annuity owner B) may decrease over time due to the increase in surrender charges C) will always be at least equal to the guaranteed minimum specified in the contract D) is tied to an investment index such as the Standard & Poor's 500
C) *Fixed annuities are what the term implies—the return is fixed for the life of the contract. In some cases, a fixed annuity may actually pay more (but never less) than the guaranteed amount. This would be true if the insurance company earned what is called "excess interest."
Which of the following insurance company products is likely to have the longest time for which a surrender charge will be levied? A) Class B shares B) Variable annuity C) Whole life insurance D) Bonus annuity
B *One of the characteristics of bonus annuities is that their surrender charges tend to be higher for a longer time than other insurance company products. When you see Class B shares on the exam, it will be referring to mutual funds, not insurance company products
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) $103,600. C) $100,000. D) $96,400.
C) *Please note that the return is negative (-4%). An index annuity does not participate in losses of the index, only gains. With no gain, and no guaranteed annual minimum, the account value remains at $100,000.
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) $118,720. B) $116,000. C) $116,600. D) $110,000.
C) *The 6% bonus means that the client's initial payment is increased by 6%. That means the account shows a starting balance of $106,000. Although the index increased by 15% and the participation rate of 80% would be a 12% growth rate, the cap of 10% comes into play. That makes the calculation: $106,000 x 110% or $116,600.
All of the following are advantages of universal life insurance EXCEPT A) ability to adjust the amount of premium payments B) when the cash value is sufficient, no premium payment is required C) ability to change death benefit amount D) the policy is guaranteed never to lapse
D *A universal life policy may lapse if the accumulation fund drops below a specified level and an additional premium is not paid.
A client purchased an index annuity from you 3 years ago and made an initial deposit of $100,000. The contract calls for a 90% participation rate with a 15% cap. The index had a return of +20% in the 1st year, -5% the 2nd year, and +10% the 3rd year. The investor's current value is approximately A) $126,500 B) $125,350 C) $128,620 D) $117,829
B *In the 1st year, the index gained 20%. With a 90% participation rate, the investor might have earned 18%, but was limited by the 15% cap. So, after 1 year, the value was $115,000. In the 2nd year, the index lost money. However, with an index annuity there are never any reductions in a down market, so the account remained at $115,000. In the 3rd year, the investor received 90% of the 10% growth and that increased the account value to $125,350. This resulted in an overall gain of 25.35%, or an average return of almost 8.5% per year.
When discussing the purchase of a scheduled premium variable life insurance policy with a client, it would be CORRECT to state that A) you will receive a statement of your death benefit no less frequently than semiannually B) by surrendering the policy, its cash value may be obtained C) premiums will vary based upon performance of the separate account D) if a policy loan exceeds the policy cash value, the deficiency must be remedied within 10 business days to keep the policy from lapsing
B *Surrender of the contract requires the insurance company to pay out its cash value. Death benefit is adjusted annually.
An owner of an annuity that has been annuitized, can do all of the following EXCEPT A) have a joint life with last survivor clause with payments paid until the death of the last survivor B) receive monthly payments for a defined period and then 2 years later change the contract to payment for life C) receive payments for life with a certain minimum period of time guaranteed D) receive payments on a monthly basis until the time of death
C) *The contract is annuitized when the investor converts from the accumulation (pay-in) stage to the distribution (payout) stage. Once a payout option is selected, it cannot be changed. An annuity owner can elect to receive the benefits on a monthly basis until the time of death. An annuity owner can elect to receive the benefits for life with a certain minimum period of time guaranteed. In addition, an annuity owner can have a joint life with last survivor clause with payouts made until the death of the last survivor.
Which of the following statements are TRUE of a variable annuity? The number of annuity units is fixed when payout begins. The value of accumulation units is fixed at purchase. The monthly annuity payment is a variable amount. The annuity payments are not subject to income taxes. A) III and IV B) I and II C) I and III D) II and III
C) 1 & 3 *The number of annuity units is fixed when an annuitant starts the payout process, and the monthly payment will vary with the market value of the securities in the separate account portfolio. The value of accumulation units varies with the value of the portfolio, and the growth portion of the monthly payments is subject to income tax.
An individual purchasing a flexible premium variable life contract should know which of the following? 1. Timing and amount of premiums generally are discretionary. 2. The death benefit will generally be higher than that of a comparable whole life policy. 3. The face amount is fixed at the beginning of the contract. 4. The performance of the separate account directly affects the policy's cash value. A) II and IV B) I and III C) I and IV D) II and III Explanation
C) 1 & 4 *A flexible premium policy allows the insured to determine the amount and timing of premium payments, provided minimums are met. Depending on the policy, the face amount (death benefit) is recalculated each year. It is intended that the death benefit receive some inflation protection, but this cannot be guaranteed. If separate account performance causes the cash value to drop below an amount necessary to maintain the policy in force, the policy lapses unless the requisite amount is received within 31 days.
A client of an IAR mentions that he has received a prospectus for a variable annuity, but does not really understand the product. It would be reasonable for the IAR to explain that a variable annuity offers an investor A) lifetime income guaranteed never to drop below the initial rate B) the insurance company's backing of the annuity' performance C) a product very similar to a mutual fund, but with lower costs and expenses D) the opportunity to invest in equity securities on a tax-deferred basis
D *One of the most attractive features of variable annuities is that all earnings are tax-deferred until withdrawal. The sub-accounts are usually invested in equities (although there are some with fixed income as the primary component of the portfolio), but the expenses are generally higher than for a mutual fund with similar goals. There are no guarantees on the amount of income when the VA is annuitized.
Which of the following is NOT considered to be an annuity purchase option? A) Periodic payment deferred annuity B) Single-premium deferred annuity C) Periodic payment immediate annuity D) Single-premium immediate annuity
c *An immediate annuity is one in which the payout begins immediately (generally within 30-60 days). As such, the concept of making purchases while receiving payout is illogical and is, therefore, not offered as an option.
Marianne has a fixed-premium variable life policy in which the separate account has been performing extremely well, and the face value has been increasing as a result of the investment performance. However, recently the separate account performance has been negative. If this continues, the face value could decrease A) to the original face value minus any future negative performance B) to the original face value C) to 50% of the original face value D) to 0
B *The face value in an insurance policy is the death benefit. In a variable life policy, the face value will fluctuate with the separate account's performance, but it will never decrease below the original minimum face value.
When a client purchased an annuity with a 5% bonus, it means A) the bonus is added to the initial payment B) the bonus is added to the death benefit C) the bonus is added at the last payment D) the bonus is included every payment period
A *A bonus annuity is one in which the specified bonus is added to the initial payment. For example, a client invests $100,000 into a 5% bonus annuity. The initial account balance will show as $105,000. In general, all earnings are based on the $105,000 amount. Bonus annuities tend to have longer surrender periods to compensate.
An agent presenting a variable life insurance (VLI) policy proposal to a prospect must disclose which of the following about the insured's rights of exchange of the VLI policy? A) Federal law requires the insurance company to allow the insured to exchange the VLI policy for a permanent form of life insurance policy, issued by the same company for 2 years with no additional evidence of insurability. B) Within the first 18 months, the insured may exchange the VLI policy for either a permanent form of life insurance or universal variable policy, issued by the same company, with no additional evidence of insurability. C) The insured may request that the insurance company exchange the VLI policy for a permanent form of life insurance policy, issued by the same company, within 2 years. The insurance company retains the right to have medical examinations for underwriting purposes. D) The insurance company will allow the insured to exchange the VLI policy for a permanent form of life insurance policy within 45 days from the date of the application or 10 days from policy delivery, whichever is longer.
A *Federal law requires that issuers of variable life insurance policies allow exchange of these policies for a permanent form of life insurance policy, issued by the same company for a period of no less than 2 years. The exchange must be made without additional evidence of insurability.
Which of the following would most likely put a limit on the amount of interest to be credited to an index annuity? A) The cap rate B) The participation rate C) The annuity reset rate D) The CDSC
A *Many index annuities have a cap rate. That represents the maximum return that can be credited to the annuity, regardless of the performance of the index. It is what limits the amount credited. Yes, the participation rate does affect how much can be credited, but, if there is no cap, there is theoretically no limit on the earnings. This is an example where you have to select the answer that best matches the question. A cap is a limit.
Which of the following is a possible advantage of scheduled premium variable life insurance over whole life insurance? A) Possible inflation protection for the death benefit B) Flexibility of premium payments C) Less risk in the underlying investment instruments D) Greater guaranteed cash value
A *Scheduled (fixed) premium variable life has fixed, not flexible, premium payments. The distinguishing factor is the variable death benefit. The insured assumes more risk, not less, in exchange for the possibility that the death benefit will provide protection from inflation.
Among the reasons why deferred variable annuities might not be a suitable investment for seniors are all of the following EXCEPT A) potential inflation protection B) potential capital fluctuation C) surrender charges D) improper sub-account selection
A *Variable annuities do offer potential inflation protection due to their participation in the equity market. The tradeoff is potential capital fluctuation, particularly if the portfolio selected is too aggressive. In addition, unlike mutual funds, they typically carry high surrender charges.
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 scheduled premium policy because the contract is issued with a minimum guaranteed face amount 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 flexible premium policy because the contract's face amount cannot be less than a predetermined percentage of cash value D) the scheduled premium policy because earnings do not affect the contract's face amount
A) *A scheduled premium variable life contract is issued with a guaranteed minimum death benefit. If the individual is concerned about having the minimum guarantee, you should recommend the scheduled contract.
If an index annuity has a participation rate of 80%, it means A) the investor's account will be credited with 80% of the growth of the index. B) the investor's account will be charged with 80% of the amount lost by the index. C) the investor's account will never be less than 80% of the initial investment. D) the investor's account will participate in 80% of the gains and losses of the index.
A) *The participation rate of an index annuity is the percentage of the growth of the index credited to the investor's account. For example, if the index had a return of 10% and the participation rate is 80%, the investor's account is credited with 8% growth. This may be limited by a cap (a maximum), but unless a cap rate is stated in the question, there isn't one. One of the benefits of an index annuity is that it only shares in the growth, never any losses.
Which of the following is not an annuity purchase option? A) Periodic payment immediate annuity B) Single premium immediate annuity C) Single premium deferred annuity D) Periodic payment deferred annuity
A) *With an immediate annuity, payout begins immediately (generally within 30-60 days). As such, the concept of making purchases while receiving payout is illogical and is, therefore, not permitted as an option.
Larry purchased a deferred annuity and, on his 65th birthday, annuitized the product under a life with 15-year certain option. His spouse, Linda, is the beneficiary. Which of the following statements is CORRECT? A) Payments would be made to Larry as long as he lives, but should he die prior to reaching age 80, Linda will receive payments until Larry's 80th birthday. B) Payments would be made to Larry until he is 80, then to Linda for the remainder of her life. C) Payments would be made to Larry until his death, then to Linda for another 15 years. D) Payments would be made to Larry until he is 80, then cease.
A)Payments would be made to Larry as long as he lives, but should he die prior to reaching age 80, Linda will receive payments until Larry's 80th birthday.
A 54-year-old individual invests $25,000 into a nonqualified single premium deferred variable annuity. Five years later, with an account value of $35,000, the investor engages in a Section 1035 exchange into a variable annuity issued by a different insurance company. Four years later, with an account value of $50,000, the investor withdraws $20,000. The tax consequence of the withdrawal is A) $20,000 of ordinary income plus a 10% penalty tax. B) $20,000 of ordinary income. C) $15,000 of ordinary income, $5,000 of long-term capital gain. D) $15,000 of ordinary income, $5,000 nontaxable return of principal.
B) *A partial withdrawal from a nonqualified annuity is taxed on a LIFO basis. That is, the last money in (assumed to be earnings), is the first money out. The cost basis is the original $25,000. The 1035 exchange merely carried that cost basis over and resulted in no current tax on the $10,000 of earnings. When $20,000 is withdrawn, all of it represents the earnings and that is taxed as ordinary income. There is never capital gains taxation on an annuity and there is no 10% penalty tax because this investor is older than 59½ at the time of the withdrawal.
Annuity companies offer a variety of purchase options to owners. Which of the following definitions regarding these annuity options is NOT true? A) A single premium deferred annuity is a lump sum investment, with payment of benefits deferred until the annuitant elects to receive them. B) An accumulation annuity allows the investor to accumulate funds in a separate account prior to investment in an annuity. C) A periodic payment deferred annuity allows a person to make periodic payments over time; the contract holder can invest money on a monthly, quarterly, or annual basis. D) An immediate annuity allows an investor to deposit a lump sum with the insurance company; payout of the annuitant's benefits starts immediately (usually within 60 days).
B) *Accumulation does not refer to a purchase option. The pay-in period for an annuity is known as the accumulation stage. A single premium deferred annuity is an annuity with a lump-sum investment, with payment of benefits deferred until the annuitant elects to receive them. Periodic payment deferred annuities allow a person to make periodic payments over time. Immediate annuities allow an investor to deposit a lump sum, with the insurance company payout of the annuitant's benefits starting immediately (usually within 60 days).
Alix purchased a single premium deferred fixed annuity over 10 years ago. She would be subject to taxation on the deferred earnings which of these cases? A) When she dies B) When the earnings are credited to her account C) When the earnings are withdrawn D) If she enters into a Section 1035 exchange
C *Earnings from any deferred annuity are taxed when withdrawn using the LIFO (last-in, first-out) method. A major advantage of a deferred annuity is that all earnings during the deferral period are tax deferred. A special feature available to certain insurance company products, including annuities, is the ability to exchange 1 annuity for another on a tax-free basis under the provisions of Section 1035. When the annuitant dies, neither she nor her estate are subject to income tax; any tax due is levied against the beneficiary.
One of the major financial decisions to be made by a family is the amount and type of life insurance to purchase. The form of insurance that offers flexible premiums without a fixed cash value is A) whole life. B) term life. C) universal life D) variable life.
C *A unique feature of universal life is that the premiums are flexible. That is, if the client wishes to pay more or less than the target premium, that may be done. However, the nature of the universal life product is such that cash values can fluctuate. Cash values can fluctuate in variable life, but unless the policy is UVL (universal variable life), premiums are scheduled (fixed). Typically there are no cash values with term insurance and the premiums are fixed and whole life has both fixed premiums and guaranteed cash values
A popular vehicle for saving for retirement is the variable annuity. An agent explaining the benefits of this product would probably be in violation of the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents by claiming that variable annuities offer A) the ability to exchange funds between subaccounts without incurring a tax liability under IRS Code Section 1035 B) tax deferral on earnings until withdrawn from the account C) lower overall expenses than a mutual fund with similar investment objectives D) the choice of a large number of different subaccounts with varying objectives
C *In general, variable annuity expenses are higher than those of a mutual fund with similar objectives. That doesn't mean the fund is good and the VA bad, it is that there are guarantees and other features offered by the VA that a fund does not have and they have to be paid for.
Alexander Wimpton purchased a variable life insurance policy 10 years ago. The policy has a $500,000 face amount which has grown to $525,000 due to the performance of the selected separate account subaccounts. Three years ago, Wimpton borrowed $50,000 against the policy which has never been repaid. The effect of this is that Wimpton's total death benefit today is A) $525,000 B) $500,000 C) $475,000 D) $450,000
C *The death benefit of a variable life insurance policy is the current face amount ($525,000) or the guaranteed minimum, whichever is greater, less any outstanding loans ($50,000).
A 57 year-old client has $100,000 in a non-qualified variable annuity and $100,000 in a mutual fund with a dividend reinvestment plan. Coincidently, each was purchased 10 years ago with a deposit of $50,000. If the client needs $50,000 to use as a down payment for a vacation home, which would have the most severe tax consequences? A) Not enough information to tell B) The tax consequences would be the same C) The variable annuity D) The mutual fund
C *There are several differences involved here. First of all, withdrawals from a variable annuity are treated on a LIFO basis. That is, the earnings are considered to be withdrawn first. In that case, all $50,000 taken from the VA are taxed as ordinary income. In addition, because the client is not yet 59 ½, there is the 10% tax penalty tacked on. The mutual funds are part of a dividend reinvestment program which means that a good portion of the $50,000 in gain has already been taxed and, in any event, there is no early withdrawal tax penalty. Finally, profits from the sale of mutual fund shares held this long would be taxed at the long-term gains rate, always lower than ordinary income.
An investor in a variable annuity will be purchasing A) participation units B) annuity units C) accumulation units D) shares of the underlying sub-account
C *Unlike a mutual fund, where the investment is into shares of the fund, when purchasing a variable annuity, the investor is acquiring accumulation units. Upon annuitization, those are converted into annuity units. The investor isn't directly purchasing shares in the underlying sub-account—the annuity company is doing that.
Concerning index annuities and their method of crediting interest, which of the following is TRUE? A) Annual reset offers the best return regardless of market fluctuations. B) High-water mark with look back offers the best return during periods of high volatility. C) On average, annual reset has a higher participation rate than point to point. D) Point to point offers the best return when the market has had a single drastic decline during the period.
C *Using the annual high-water mark with look back will generally result in the highest return during periods of high volatility. The reason is because under this method, the highest anniversary value is used to determine the gain. In a volatile market, there is likely to be a high spike sometime during the period and that is the value used. The problem with point to point when there is a single drastic decline during the period is that the decline might occur at or just prior to the annual crediting computation. Annual reset does ignore the daily market fluctuations, but if the index is lower at the end of the year, there is nothing credited. In reality, annual reset has a lower participation rate than point to point.
A 35-year-old client purchases a variable life insurance policy. Under current regulations, the maximum sales charge permitted over the life of the policy is A) 8.5% per premium payment B) 9% per premium payment C) 9% D) 8.5% of total premiums over the life of the plan
C) *A variable life insurance plan may charge a maximum sales charge of 9% over a period not to exceed 20 years.
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) Capital gains taxation on the earnings withdrawn in excess of the owner's basis B) A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis C) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis D) A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn
C) *Contributions to a nonqualified annuity are made with the owner's after-tax dollars. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. Because the client is older than 59½ at the time of distribution, the additional 10% penalty tax is not incurred.
The owner of a fixed annuity is protected against A) inflation risk. B) purchasing power risk. C) longevity risk. D) loss of money due to early death.
C) *Because a fixed annuity promises a fixed monthly payment for life, longevity risk is not a concern. However, the fixed payments are subject to purchasing power risk, also known as inflation risk. One other risk is that of dying after only receiving payments for several months after having chosen the life only option.
A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. How is the distribution taxed? 1. The entire amount is taxed as ordinary income 2. The growth portion is taxed as ordinary income. 3. The growth portion is taxed as a capital gain. 4. The growth portion is subject to a 10% penalty. A) I and IV B) III and IV C) II and IV D) II and III
C) 2 & 4 *On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). In this case, the investor is taking a lump-sum distribution before reaching age 59½ and must pay an additional 10% penalty on the taxable amount.
A client purchases a fixed annuity that will immediately begin paying $2,000 a month for life. What is the annuitant's greatest risk? A) Interest rate risk B) Capital risk C) Market risk D) Inflation risk
D *Also known as purchasing power risk, inflation risk is the effect of continually rising prices on investments. A client who annuitizes a fixed annuity, receiving $2,000 per month, will likely find the monthly check has less purchasing power as time goes on.
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) remain steady. B) decline. C) change its objective. D) be volatile.
D *An advantage of the high-water crediting method is that the interest is calculated using the highest value of the index during the term. Therefore, in a volatile market, where prices are going up and down, it picks up the highest price.
In the past 20 years, 55-year-old James has put $27,000 into accumulation units in his nonqualified variable annuity. The current value of his units is $36,000. He wishes to withdraw $16,000 to assist with his grandchild's college education. If he is in the 28% tax bracket, what is his tax consequence on the withdrawal? A) $4,480.00 B) $0.00 C) $2,520.00 D) $3,420.00
D *Because this is nonqualified, the investments are in after-tax dollars. Therefore, any value of the account over the investment is growth. Withdrawals from tax-deferred plans treat the growth as ordinary income for tax purposes. The portion attributable to growth is considered to be withdrawn first under the Tax Code. Here, we have $9,000 worth of growth taxable at 38% (28% + 10% penalty) because James is younger than 59½. Yes, the earnings on a non-qualified annuity are subject to the 10% penalty; it is only the principal that escapes the tax and penalty. The remaining $7,000 withdrawn is considered a withdrawal of principal and is therefore nontaxable.
An investor purchases a single premium deferred index annuity with an initial premium of $200,000. Soon after the purchase, the investor receives a statement from the insurance company showing an initial balance of $210,000. The most likely reason for the $10,000 increase is A) the insurance agent's commission was added to the account. B) the underlying index has had outstanding performance. C) the insurance company paid a dividend. D) this is a bonus annuity.
D *It is not uncommon to find index annuities offering a bonus added to the premium. In this case, the bonus appears to be 5%. There are no dividends on index annuities and rebating commissions is prohibited.
The main benefit that variable life insurance has over whole life insurance is A) an adjustable premium B) a lower sales charge C) the availability of policy loans D) the potential for a higher cash value and death benefit
D *Premiums of variable life insurance policyholders are invested in the insurer's separate account. This allows the policyholder the opportunity (though there are no guarantees) to enjoy significant returns and substantially higher cash values than are obtainable through a whole life policy.
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 but at a reduced rate C) It continues D) It ceases
D *The M&E charge is for mortality and expenses. Once an annuity contract, fixed or variable, is annuitized, that charge no longer applies to the account. There may be an internally computed charge, but unlike the accumulation period, the charge is not broken out separately.
In a scheduled premium variable life contract, which of the following has a guaranteed minimum? A) The cash value B) The maturity value C) The expense ratio D) The death benefit
D *There is a guaranteed minimum death benefit. The cash value will vary according to the performance of the investments in the separate account. These policies to not have a maturity value and may have a guaranteed maximum expense, ratio, not a guaranteed minimum.
n owner of an annuitized annuity can do all of the following EXCEPT A) have a joint life with last survivor clause, with payments paid, until the death of the last survivor. B) receive the benefits on a monthly basis until the time of death. C) receive the benefits for life with a certain minimum period of time guaranteed. D) receive monthly payments for a defined period and then 2 years later change the contract to payment for life
D) The contract is annuitized when the investor converts from the accumulation (pay-in) stage to the distribution (payout) stage. Once that happens, the owner no longer has control over the asset. All payout decisions must be selected in advance because they cannot be changed.