Annuities

Which of the following can surrender a deferred annuity contract?

Only the annuity owner

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.

Your client uses $50,000 in inheritance money to purchase a single premium immediate annuity. How soon can he begin receiving income payments?

No later than 1 year from the time of purchase

In life insurance policies, cash value increases

Grow tax deferred.

A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called

1035 exchange.

An agent selling variable annuities must be registered with

FINRA.

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

The beneficiary

When an annuity is written, whose life expectancy is taken into account?

Annuitant

All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT

It is a life contingency option.

Death benefits payable to a beneficiary under a life insurance policy are generally

Not subject to income taxation by the Federal Government.

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

Single payment or periodic payments

An applicant buys a nonqualified annuity, but dies before the starting date. For which of the following beneficiaries would the interest accumulated in the annuity NOT be taxable?

Spouse

An annuitant dies before the effective date of a purchased annuity. Assuming that the annuitant's wife is the beneficiary, what will occur?

The interest will continue to accumulate tax deferred.

What license or licenses are required to sell variable annuities?

Both a life insurance license and a securities license

Which of the following terms is used to name the nontaxed return of unused premiums?

Dividend

Mike purchased a $10,000 single premium annuity. During the first year of the contract, Mike decided to change his investment strategy and wants to cancel that annuity. What is the minimum nonforfeiture value of the annuity?

$8,925

All other factors being equal, which of the following individuals would receive the largest monthly check from a single premium straight life immediate annuity?

A 60-year-old man

Which concept is associated with "exclusion ratio"?

Annuities payments

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

Exclusion ratio

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?

$3,000

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

Free of federal income taxation.

Life insurance death proceeds are

Generally not taxed as income.

What type of annuity can be purchased with a single premium and provides benefit payments immediately?

Immediate

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income?

Interest only

What part of the Internal Revenue Code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences?

Section 1035 Policy Exchange

All of the following are true of an annuity owner EXCEPT

The owner must be the party to receive benefits.

Which of the following 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.

Which of the following will NOT be an appropriate use of a deferred annuity?

Creating an estate

What method is used to determine the taxable portion of each annuity payment?

The exclusion ratio

Which of the following is NOT true regarding the annuitant?

The annuitant cannot be the same person as the annuity owner.

During the accumulation period in a nonqualified 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 ½.

Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity?

Insurer's guaranteed minimum rate of interest

The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called

Life income with period certain.

Which of the following is NOT true regarding policy loans?

Money borrowed from the cash value is taxable.

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

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.

Which of the following is NOT true regarding Equity Indexed Annuities?

They earn lower interest rates than fixed annuities.

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

Taxes are deferred.

In a fixed annuity, which of the following is true regarding the guaranteed interest rate on the investment?

The annuitant will receive the higher of either the guaranteed minimum rate or current rate.

Which of the following is TRUE regarding variable annuities?

The annuitant assumes the risks on investment.

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.

Which of the following is NOT an allowable 1035 exchange?

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

What type of annuity guarantees to pay an income to the annuitant each year as long as he lives, and upon death, the annuity will refund the remaining payments to a beneficiary?

Installment refund annuity