Annuities
When compared to a fixed annuity, a variable annuity has what distinguishing feature?
investment risk is assumed by the purchaser
What is another term used for a "pure" life annuity?
life income
The annuitant in a single deferred annuity
makes only one premium payment
John bought a deferred annuity on Mary. John amends the contract years later to name Tom as the recipient of the proceeds if Mary dies. Who is the annuitant for this contract?
mary
The contractual rights which allow the owner of a deferred annuity to surrender the cash value several years before the annuity date are called
nonforfeiture options
Sarah, age 88, is a life annuitant who has lived beyond her life expectancy. The funds for additional benefit payments will be derived primarily from funds that were obtained from the state's Guaranty Association accumulated from the invested principal given up by the annuitant's refund beneficiary not distributed to life annuitants who died before life expectancy
not distributed to life annuitants who died before life expectancy
The authority to change the beneficiary in an individual annuity lies with the
owner
Who typically makes the purchase payments in an individual annuity
owner
A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called
period certain
During an annuity's liquidation phase, the annuitant normally
receives benefit payments at regular intervals
How do benefit payments fluctuate over time in a variable life annuity? Benefit payments stay fixed Reflects changes in the market value of assets in a separate account Annuitant controls any benefit payment changes Any benefit payment fluctuations have to be approved in writing by the owner
reflects changes in the market value of assets in a separate account
What does a fixed life annuity offer protection against?
savings depletion due to longevity
Sylvia purchased an annuity for $100,000 from the proceeds of an inheritance. No further payments are permitted and the income stream begins in 15 years. This contract is a(n)
single premium deferred annuity
What happens to the cash value of a market value adjusted annuity if it's surrendered prior to the end of the stated guarantee period?
subject to market value adjustment
Under a deferred annuity, which contract feature initially charges a 5-10% fee that eventually reduces to $0 after a stated amount of time?
surrender charge
An insurer will typically assess a back-end load on a deferred annuity that is cancelled during the early contract years. What is this back-end load referred to as?
surrender charges
The interest credited to the cash values of personally-owned non-qualified annuities is considered a tax credit tax-deferred tax-deductible tax-exempt
tax-deffered
How are monthly life annuity benefit payments treated under a tax sheltered annuity (TSA)?
taxed as ordinary income in the year received
The exclusion ratio determines
the amount of annuity payment subject to income tax
When does the owner's contractual rights begin under an individual annuity contract?
time of purchase
The owner's cost basis for a non-qualified deferred annuity is typically the same as the
total premiums paid
When does interest income for a flexible premium deferred annuity get reported for federal income taxes
upon receiving distributions from the contract
Taking a sum of money and decreasing it in size is called
capital liquidation
An annuity's accumulation period may
continue after the purchase payments stop
When a sum of money undergoes capital liquidation, that sum will increase in value remain the same indefinitely decrease in size create tax deductions
decrease in size
What happens when the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up?
decreases
An individual, age 45, would like to help pay for his daughter's college expenses in 10 years. Which annuity would be appropriate for this individual?
deferred
Which annuity allows contributions to an IRA?
deferred
When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest earned minus
expenses and withdrawals
An annuitant is paid $495 per moth until the contract value is exhausted at some undetermined date in the future. Which type of annuity payout option is this?
fixed amount
Tori has an annuity that pays her a $500 per month income benefit for life or for ten years, whichever is longer. What kind of annuity is this?
fixed life annuity with period certain
The administrator for a corporate pension plan bought an accumulation annuity contract for its 2,000 employees. All 2,000 participating employees received certificates of participation. What kind of contract is this?
group deferred annuity
A life annuity with period certain is characterized as
guaranteeing benefit payments for a stated minimum number of years
An annuity which starts paying monthly benefits within a month after issuance is called a(n)
immediate annuity
When a deferred annuity is surrendered, who must sign the authorization to do so? Owner Annuitant and beneficiary Annuitant All parties involved
OWner
What determines how much an annuitant is paid for a variable annuity?>
The market value variations of the securities backing it
What is the effect of the market value adjustment in a market value adjustment annuity?
Transfers some of the investment risk to the policyowner
Which event triggers a deferred annuity to start making benefit payments to the annuitant?
When the contract is annuitized
The purpose of an annuity is to create
a stream of income
Which of the following is not a valid contract exchange?
an annuity exchanged for a life insurance policy
During the liquidation phase of an annuity contract, to whom are the income benefits normally payable to?
annuitant
The surrender charge on may deferred annuity contracts are waived when the
annuitant dies or becomes disabled
Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will discontinue after a stated number of years remain a constant dollar amount for the duration of the annuity period pay a lump sum if the annuitant dies vary according to the underlying investment performance
b
A single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct? A. If the interest rate falls below a specified level, the surrender charge is waived B. if the interest rate rises above a certain level, the surrender charge is waived C. it allows the life and health guaranty association to bailout the insolvent insurer
A
The owner of a single premium deferred annuity is entitled to do all of these EXCEPT A. make additional payments into the annuity B. choose the length of the payout period C. choose who will be the recipient of the annuity payments
A
A single-life annuity only has one
Annuitant
A business may purchase an annuity for all of the following reasons EXCEPT A. structuring a liability settlement payment B. informally funding a non-qualified deferred compensation plan C. Accumulating assets on a tax-deferred basis D. providing a pension to employees
B
Interest is credited to a fixed annuity no lower than the variable contract rate contract guaranteed rate current rate of inflation prime rate
B
The interest paid during an annuity's payout period is considered nontaxable taxable as ordinary income taxable as capital gains tax-deductible
B
Which of the following would NOT be appropriate for an immediate annuity? A. a lottery winner who opted for a lump-sum payment B. a parent saving for a child's college C. a beneficiary collecting the face amount of a life insurance policy
B
Which of the following contracts offer deferred taxation, flexible payments, a guaranteed interest rate and death benefits equal to the cash value? A. variable life B. modified life C. flexible premium fixed annuity D. immediate fixed annuity
C
Which of the following would most likely purchase an immediate annuity? A. individual wanting to contribute to a tax sheltered annuity B. individual wanting to accumulate an investment over time C. retiree having a lump sum to invest D. business needing an immediate tax write off
C
Which of these pays an income to two or more annuitants until the death of the last annuitant? Joint life annuity Deferred survivor annuity Joint and survivor annuity Survivorship annuity
C
which statement concerning a deferred annuity contract is correct? A. the contract cannot be assignable by the owner B. requires a single premium payment C. the owner can be the beneficiary, annuitant, or neither
C
Which of the co-annuitants listed below would receive the largest monthly benefit payments in a joint and 100% survivor annuity? A. age 70 and 72 B. age 60 and 80 C. age 71 and 73
C - oldest blender age
Which benefit can be found in an equity indexed annuity, but not in a fixed annuity? Protection against living too long Equity loans A fixed rate of return Protection against long-term inflation
D
Which of these annuity contract features is meant to discourage withdrawals and exchanges? A. annuilization B. annual fees C. withdrawal penalty D. surrender charges
D
Which statement is incorrect concerning a tax-sheltered annuity? A. participants make payments from salary reductions B. normally used by charitable, education and religious organizations C. also known as 403(b) plans D. annual investment gains are included in a participants gross income
D
When a large sum of money is used to structure monthly payments, which product is typically used? A 401(k) plan A 403(b) plan A deferred annuity An immediate annuity
D.
Which of the following is not an intended use of an annuity? A. obtain income benefits for a stated period of time for more than one person B. accumulate assets on a tax-deferred basis C. create immediate lifetime income benefits D. create new funds upon the death of a wage-earner
D.
When an annuity contract has been fully surrendered, how will the surrender charges affect the final contract settlement?
Final contract settlement will be reduced
A large corporation pension plan purchased an accumulation annuity contract where all of the participating employees received certificates of participation. What is this contract called?
Group deferred annuity
A retired couple would like to maximize the income derived from their combined life savings and have it payable until they both die. Which annuity would be their best choice?
Joint and survivor annuity
A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today?
$200,000
