7 - Annuities

How does an indexed annuity differ from a fixed annuity?

Indexed annuity owners receive credited interest tied to the fluctuations of the linked index

Which of these statements concerning an Individual Straight Life annuity is accurate?

Payments are made to an annuitant for life A Straight Life annuity pays for the life of the annuitant.

Which type of contract liquidates an estate through recurrent payments?

Annuity A contract that provides for the liquidation of all or part of an estate through periodic payments is known as an annuity.

P, age 50, purchased an annuity that P will fund with $500/ month for 15 years. The annuity will then pay P retirement payments after the 15 years. Which type of annuity did P purchase?

Deferred In this situation, the type of annuity purchased is best described as deferred.

N purchases an annuity by making payments in an amount no less than $100 quarterly. This describes which of the following annuities?

Flexible Installment Deferred

The type of annuity that can be purchased with one monetary deposit is called a(n)

Immediate annuity An immediate annuity is purchased with one monetary deposit.

Variable annuities may invest premiums in each of the following EXCEPT Common Stock Money Market securities Insurer's corporate business account Junk bonds

Insurer's corporate business account Variable annuities may invest premiums in each of these EXCEPT the "Insurer's corporate business account".

S recently received a $500,000 lump sum retirement buyout from her employer. She would like to buy an annuity that will immediately furnish her with a guaranteed income for life. What type of annuity is best suited for her situation?

Single Premium Immediate Annuities are purchased with a single lump sum payment and will start providing income payments within the first year, but usually starting 30 days from the purchase date.

The annuity that represents the largest possible monthly payment to an individual annuitant is a(n)

Straight Life annuity The Straight Life annuity pays the largest monthly benefit to a single annuitant because it is based only on life expectancy, but it creates a risk that the annuitant may die early and forfeit much of the value of the annuity to the insurance company.

Which of the following statements regarding a Tax Sheltered Annuity (TSA) is INCORRECT?

The correct answer is "The income from the TSA is received income tax-free". Upon retirement, payments received by employees from the accumulated savings in tax-sheltered annuities are treated as ordinary income.

An immediate annuity consists of a

single premium An immediate annuity has a single premium.

Which of the following is NOT included in an annuity contract? Nonforfeiture benefit Free-Look period Beneficiary AD&D rider

All of these are included in an annuity contract EXCEPT an Accidental Death & Dismemberment (AD&D) rider.

T, age 70, withdraws cash from a profit-sharing plan and purchases a Straight Life Annuity. What will this transaction provide?

Income that cannot be outlived by the owner A Straight Life Annuity will provide an income that the owner cannot outlive.

T has an annuity that guarantees an income payment for the rest of his life. The contract also guarantees that if T dies before receiving payments for 20 years, the remaining payments will be paid to his son for the balance of the 20 years. What type of annuity is this?

. The correct answer is "Life Annuity with Period Certain". This situation involves a Life Annuity with Period Certain.

An annuity promises that, if the annuitant dies before receiving payments equal to the correct value, the payments will be continued to a beneficiary until an amount equal to the contract value has been paid. This type of annuity is called

An installment Refund annuity An installment Refund annuity promises that if the annuitant dies before receiving payments equal to the correct value, the payments will be continued to a beneficiary until an amount equal to the contract value has been paid.

What type of annuity has a cash value that is based upon the performance of it's underlying investment funds?

Variable A variable annuity's cash value will depend on the results of its investment funds.

If an annuity is terminated prior to beginning of the income payment period, the contract owner receives

The contract surrender value at that time If an annuity is terminated prior to beginning of the income payment period, the contract owner receives the contract surrender value at that time.

What is considered to be a characteristic of an immediate annuity?

Benefit payments start within one payment period of purchase

N, age 50, recently bought an annuity that will pay a guaranteed $2,000/month at age 70 for life. What type of annuity did N purchase?

Fixed Deferred A Fixed Deferred annuity pays out a fixed amount for life starting at a future date.

Equity indexed annuities are invested in which of the following

S&P 500 An indexed annuity is a type of tax-deferred annuity whose credited interest is linked to an equity index — typically the S&P 500.

An individual who purchases a Life annuity is given protection against

the risk of living longer than expected A Life annuity offers protection against the risk of living longer than anticipated

W is a 39-year old female who just purchased an annuity to provide income for life starting at age 60. All of these would be acceptable annuity choices EXCEPT a(n)

Immediate annuity . Immediate annuities start providing income payments usually starting within 30 days from the purchase date.

Which of the following is a characteristic of a variable annuity?

Underlying equity investments Variable annuities involve underlying equity investments in a separate account.

Which of the following annuities pays benefits based on units rather than specific dollar amounts?

A Variable annuity A Variable annuity pays benefits based on units rather than specific dollar amounts.

G purchased a $50,000 single premium, Straight Life Annuity 2 years ago. G has been receiving monthly payments from the annuity. When G dies, the insurer

Does not have to make any further payments With a Straight Life Annuity, the insurer does not have to make further payments after the annuitant dies.

Which of these is an element of a Single Premium annuity?

Lump-sum payment A lump-sum payment is required for a Single Premium annuity.

P is a forty year old woman and would like to purchase an annuity that will provide a lifetime income stream beginning at age sixty. Which of the following did she NOT buy?

An immediate annuity An immediate annuity is designed to make its first benefit payment to the annuitant at one payment interval from the date of purchase.