Annuities

When the owner of a $250,000 life insurance policy died, the beneficiary decided to leave the proceeds of the policy with the insurance company and selected the Interest Settlement Option. If at the time of withdrawal the interest paid was $11,000, the beneficiary would be required to pay income tax on

$11,000

If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually?

$3,000

An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?

$3000

What type of license(s) is/are required in order to sell variable annuities?

A life insurance license and a securities license

Which is NOT an allowable 1035 exchange?

A whole life insurance policy is exchanged for a term insurance policy

What are the two phases of an annuity?

Accumulation and annuitization (or pay-in and pay-out)

In flexible premium payment annuities, the term "flexible" refers to what?

Amount of premium

Who receives income payments from an annuity?

Annuitant

Whose life expectancy is taken into consideration in an annuity contract?

Annuitant

If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?

Annuitant's estate

What concept is associated with "exclusion ratio?"

Annuities payments

In an annuity, the accumulated money is converted into a stream of income during which phase?

Annuitization period

An individual has a contract that will provide him with a certain amount of income for the rest of his life. However, that is not a life insurance policy. What type of contract does this person have?

Annuity

Who possesses all the rights in an annuity?

Annuity owner

What is a feature of a variable annuity?

Benefit payment amounts are not guaranteed

What are the two types of refund life annuities?

Cash refund and installment refund

What is true regarding taxation of dividends in participating policies?

Dividends are not taxable

If the annuitant dies before the annuity period starts, what will the beneficiary receive?

Either the amount paid into the annuity or the cash value, whichever is greater

What type of annuity credits it's interest based upon an index such as S&P 500?

Equity indexed annuity

Which of the following is used to determine the annuity amount that are not taxable?

Exclusion ratio

An annuity purchased with multiple payments that begins income payments after one year from the moment of purchase is known as what type of annuity?

Flexible premium deferred annuity

How long will a life annuity with a 15-year period certain pay?

For the life of the annuitant unless he/she dies within the first 15 years of the annuitization period; then the payments will last for 15 years

If taken as a lump sum, life insurance proceeds to beneficiaries are passed

Free of federal income taxation

What are the two classifications of annuities according to the time when annuity payments begin?

Immediate and deferred

What type of annuity can be purchased with a single premium?

Immediate annuity

What is a disadvantage of owning a fixed annuity, as opposed to variable?

In times of inflation, the benefit of a fixed annuity will have decreased purchasing power.

Under which annuity option does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be?

Installments for a fixed period

What statement is FALSE regarding installments for a fixed period annuity settlement option?

It is a life contingency option

If an annuity provides a set amount of income for two or more persons with the income ceasing upon the first death, what type of annuity is that?

Joint life annuity

What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?

Life income with period certain

Which of the following is not true regarding policy loans?

Money borrowed from the cash value is taxable.

How soon can income payments begin in an immediate annuity?

No later than 1 year from the time of annuity purchase

With a single premium deferred annuity, when will the annuity payments become available?

No sooner than 1 year after the annuity purchase

Can a business or a corporation be an annuitant?

No, an annuitant must always be a natural person

Life insurance death proceeds are generally ?

Not taxed as income

How long is income paid under a pure life annuity?

Only for the life of the annuitant

What are accumulation units in annuities?

Ownership interest in the separate account (instead of buying shares, annuity holder purchases accumulation units)

What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and ceases at the annuitant's death?

Pure life

Annuities can be used to fund what?

Retirement plans

Equity indexes annuities

Seek higher returns

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a

Settlement option

How are annuities classified depending on how many lives they cover?

Single life and multiple life annuities

Which two terms are associated directly with the way an annuity is funded?

Single payment or periodic payments

An applicant buys a non qualified annuity, but dies before the starting. For which beneficiaries would the interest accumulated in the annuity NOT be taxable?

Spouse

What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?

Straight life

After three years of making payments into a flexible premium deferred annuity, the owner decides to surrender the annuity. The insurer returns all the premium payments to the owner, except for a predetermined percentage. What is the percentage called?

Surrender charge

During the accumulation period in a non qualified annuity, what are the tax consequences of a withdrawal?

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 1/2

Which of the following best describes taxation during the accumulation period of an annuity?

Taxes are deferred

Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?

The annuitant receives payments from the annuity during the annuitization period; the beneficiary receives benefits after the annuitant's death

What causes a variable annuity benefit to vary?

The annuity's underlying investments

What determines the penalty for surrendering a market value adjusted annuity prematurely?

The current interest rate at the time of surrender

What is the difference between a single premium and a flexible premium payment options in a deferred annuity?

The number of payments that purchase the annuity

Which of the following is true regarding a market value adjusted annuity?

The owner is guaranteed a fixed interest rate for a specific period of time.

What happens if a deferred annuity is surrendered before the annuitization period?

The owner will receive the surrender value of the annuity

What is the main reason for purchasing an annuity?

To provide income that the annuitant cannot outlive

How long will a life annuity with an installment refund pay?

Until the balance of the initial premium is paid out in continued payments to the beneficiary after the annuitants dies.

What type of annuity requires an agent to have a securities license?

Variable annuity

What describes the taxation of an annuity when money is withdrawn during the accumulation phase?

Withdrawn amounts are taxed on a last, in first out basis

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

beneficiary

If the current interest rate on an annuity is higher than the guaranteed rate, which rate will the annuity owner receive as part of the annuity payment?

current

Who bears the investment risk in a fixed annuity?

insurer

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?

payments for 15 years