Ch 7. Annuities

All of the following Emf lawyers may use a 403B plan for their retirement EXCEPT A. A school bus driver. B. The vice president of a charitable organization. C. The CEO of a private corporation. D. A part-time classroom aid.

C. The CEO of a private corporation. Not all public employees are eligible for 403B plans, or text, sheltered annuities, only employees of public education (local, state, or federal), as well as employees of charitable organizations.

An insurance company forwards fixed annuity premiums to their general accountant, where the money is invested. The guaranteed minimum interest is set at 2.5%. During an economic down string, the investments only drew 2%. What interest rate will the insure pay to its policyholders? A. 2.5% B. 2% C. 3% D. Whatever interest rate the company deemed appropriate.

A. 2.5%. Insurance companies promised guaranteed minimum on the fixed annuities 2.5% in this scenario. This means that if the investments drew less than that, the company will have to pay 2.5% anyway. If the investments earn over 2.5%, the company will pay that access .

Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity? A. Insurer's guaranteed minimum rate of interest. B. Investment performance of the insured. C. Investment performance of the company. D. Statewide predetermined annual intrest rate.

A. Insurer's guarenteed min rate of intrest.

What determines the penalty for surrendering a market value adjusted annually prematurely? A. The current interest rate at the time of surrender. B. The flat fee determined by an index of interest games and the amount of time the annuity would take to mature. C. The guaranteed minimum interest rate provided in the contract. D. There are no penalties imposed for surrendering annuities prematurely.

A. The current interest rate at the time of surrender. If the owner surrenders, a market value adjusted annuity, prematurely, a penalty is imposed. The penalty amount depends directly upon the current interest rate at the time of surrender.

Who bears all of the investment risk in a fixed annuity? A. The insurance company. B. The beneficiary. C. The owner. D. The annuity.

A. The insurance company. Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can't afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to ensure a guaranteed rate to the annuity owners.

All of the following statements are true regarding installments of a fixed amount EXCEPT A. The payments will stop when the annuitant dies. B. The annuitant may select how big the payments will be. C. This option pays a specific amount until the funds are exhausted. D. Value of the account and future earnings will determine the time period for the benefits.

A. The payments will stop when the annuitant dies. Installments for a fixed amount option has no life contingencies. A specific amount of benefits will be paid until funds are exhausted whether or not the annuitant is living.

Under a pure life annuity, an income is payable by the company A. Only for the life of the annuitant. B. For a guaranteed period of time, whether or not the annuitant survives to the end of that period. C. Until the principal and interest are exhausted.. D. For as long as either the annuitant or a named beneficiary is alive.

A. only for the life of the annuitant.

Under which installment option does the annuitant select the amount of each payment, and the insurer determines how long they will pay benefits? A. Fixed period B. Fixed amount. C. Variable amount. D. Variable period.

B. Fixed amount. Under the installments for a fixed amount option, the annuitant selects the amount of each payment, and the insurer determines how long they will pay benefits. This option pays a specific amount until the funds are exhausted. There are no life contingencies.

Which of the following can surrender a deferred annuity contract? A. Only their insurance company for nonpayment of premiums. B. Only the annuity owner. C. A deferred annuity cannot be surrendered. D. The beneficiary after the owners death.

B. Only the annuity owner. If they need arises, a deferred annuity contract may be surrendered only by the annuity owner. At surrender the owner receives the value of the annuity minus a surrender charge.

Which of the following is true regarding a market value adjusted annuity? A. It provides a level benefit payment. B. The owner is guaranteed a fixed interest rate for a specific period of time. C. The insure bears all the market risk of changing interest rates. D. There are no penalties for a premature surrender of the annuity.

B. The owner is guaranteed a fixed interest rate for a specific period of time. Under a market value adjusted (modified guaranteed) annuity, the insurer guarantees a competitive interest rate for a specific period (the longer the period, the better the guaranteed rate). At the end of the period, the owner has the option of taking the accumulated value or reinvesting the values at a new interest rate.

Which of the following is NOT A LEGITIMATE USE OF ANNUITIES BY BUSINESSES? A. Providing deferred compensation for employees. B. Providing an investment vehicle. C. Creating a shelter. D. Funding employees, retirement plans.

C. Creating a tax shelter. Annuities are most often used by businesses to fund employee, retirement plans, to provide deferred compensation for employees or as an investment vehicle

If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined? A. It is always 7% of the cash value. B. It will increase the accumulation period Increase. C. It is a flat fee, determined by the annuity owner when the annuity is purchased. D. It is a percentage of the cash value and decreases overtime.

D. It is a percentage of the cash value and decreases overtime. If a deferred annuity is surrendered, prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces overtime until it ends.