Chapter 8 - Annuities
A life annuity with period certain is characterized as
guaranteeing benefit payments for a stated minimum number of years
The owner's cost basis for a non-qualified deferred annuity is typically the same as the
total premiums paid
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
Which of these annuity contract features is meant to discourage withdrawals and exchanges?
Surrender charges
When does the owner's contractual rights begin under an individual annuity contract?
Time of purchase
A single-life annuity only has ONE
annuitant
The surrender charge on many deferred annuity contracts are waived when the
annuitant dies or becomes disabled
When a sum of money undergoes capital liquidation, that sum will
decrease in size
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
not distributed to life annuitants who died before life expectancy
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
Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will
remain a constant dollar amount for the duration of the annuity period
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
The interest credited to the cash values of personally-owned non-qualified annuities is considered
tax-deferred
The interest paid during an annuity's payout period is considered
taxable as ordinary income
The exclusion ratio determines
the amount of an annuity payment subject to income tax
An annuitant is paid $495 per month until the contract value is exhausted at some undetermined date in the future. Which type of annuity payout option is this?
Fixed amount
Which of the following would most likely purchase an immediate annuity?
Retiree having a lump sum to invest
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
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
Which benefit can be found in an equity indexed annuity, but not in a fixed annuity?
Protection against long-term inflation
What does a fixed life annuity offer protection against?
Savings depletion due to longevity
What determines how much an annuitant is paid for a variable annuity?
The market value variations of the securities backing it
Which statement concerning a deferred annuity contract is correct?
The owner can be the beneficiary, annuitant, or neither
Which event triggers a deferred annuity to start making benefit payments to the annuitant?
When the contract is annuitized
The main purpose of an annuity is to
create a stream of income
A business may purchase an annuity for all of the following reasons EXCEPT
informally funding a non-qualified deferred compensation plan
Which of the following would NOT be appropriate for an immediate annuity?
A parent saving for a child's college
Which of the co-annuitants listed below would receive the largest monthly benefit payments in a joint and 100% survivor annuity?
Ages 71 and 73
When a large sum of money is used to structure monthly payments, which product is typically used?
An immediate annuity
Which of the following is NOT an intended use of an annuity?
Create new funds upon the death of a wage-earner
What happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up?
Decreases
Which annuity allows contributions to an IRA?
Deferred
When compared to a fixed annuity, a variable annuity has what distinguishing feature?
Investment risk is assumed by the purchaser
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
Which of these pays an income to two or more annuitants until the death of the last annuitant?
Joint and survivor annuity
What is another term used for a "pure" life annuity?
Life income
The authority to change the beneficiary in an individual annuity lies with the
Owner
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
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 charge
How are monthly life annuity benefit payments treated under a tax sheltered annuity (TSA)?
Taxed as ordinary income in the year received
When does interest income for a flexible premium deferred annuity get reported for federal income taxes?
Upon receiving distributions from the contract
Under which circumstance is the interest rate guaranteed within a market value adjusted annuity?
When the contract has been held for the period specified in the policy
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
Interest is credited to a fixed annuity no lower than the
contract guaranteed rate
Which of the following is NOT a valid contract exchange?
An annuity exchanged for a life insurance policy
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
When a deferred annuity is surrendered, who must sign the authorization to do so?
Owner
An annuity which starts paying monthly benefits within a month after issuance is called a(n)
immediate annuity
The owner of a single premium deferred annuity is entitled to do all of these EXCEPT
make additional payments into the annuity
The annuitant in a single premium deferred annuity (SPDA)
makes only one premium payment
Which statement is INCORRECT concerning a tax-sheltered annuity (TSA)?
Annual investment gains are included in participant's gross income
Which of the following contracts offer deferred taxation, flexible payments, a guaranteed interest rate, and death benefits equal to the cash value?
Flexible premium fixed annuity
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
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
How do benefit payments fluctuate over time in a variable life annuity?
Reflects changes in the market value of assets in a separate account
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
What is the tax treatment of benefit payments for a non-qualified annuity?
Benefit payments are always fully taxable
What is the effect of the market value adjustment in a market value adjustment annuity?
Transfers some of the investment risk to the policyowner
During the liquidation phase of an annuity contract, to whom are the income benefits normally payable to?
Annuitant
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 annuity
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 single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct?
If the interest rate falls below a specified level, the surrender charge is waive
Which of the following is associated with an immediate annuity?
Lack of an accumulation period
Who typically makes the purchase payments in an individual annuity?
Owner
