Chapter 9 - Annuities

2. Lisa has recently bought a fixed annuity. Which of these is considered to be a disadvantage of owning this type of annuity?

During periods of inflation, annuitants will experience a decrease in purchasing power of their payments

1. The taxable portion of each annuity payment is calculated using which method?

Exclusion Ratio

5. Which of the following annuity payout options makes no additional payments regardless of when the annuitant dies?

Life Only

10. What will the beneficiary receive if an annuitant dies during the accumulation period?

The greater of the accumulated cash value or the total premium paid

Life Only

annuity payout option has no additional payouts regardless of when annuitant dies

Accumulation units

makes up the value of contributions made by the annuitant less a deduction for expense.

11. An immediate annuity has been purchased with a single premium. When does the annuitant typically begin receiving benefit payments?

1 month

What is the nonforfeiture value of an annuity before annuitization?

All premiums paid, plus interest, minus any withdrawals and surrender charges

3. Who assumes the investment risk with a fixed annuity contract?

The insurer

Exclusion Ratio

fraction used to determine the amount of annual annuity income exempt from federal income tax. (the total contribution or investment in the annuity / expected ratio

Prinicpal

original sum of money paid in to an annuity through premiums

7. Which of the following is considered to be the period when the accumulated value in an annuity is paid out?

Annuization Phase

4. Which of these annuities require premium payments that vary from year to year?

Flexible Premium deferred annuity

12. Phil is shopping for an annuity that guarantees he CANNOT outlive the benefits. Which of these benefit options would he choose?

Guaranteed lifetime withdrawal benefit

8. Andy the annuitant dies before the annuity start date. Which of the following is a TRUE statement?

Premiums paid plus interest earned is returned to the beneficiary

9. An annuitant dies during the distribution period. What kind of annuity will return to a beneficiary the difference between the annuity value and the income payments already made?

Refund annuity

6. Maria would like an annuity that provides a guaranteed accumulation or payout. The type of annuity she is seeking is called

annuity certain

1035 Exchange

applies to annuities. if an annuity is exchanged for another annuity, a gain is not realized for tax purposes. this provision allows the policyholder to transfer funds from a life insurance, endowment or annuity to a new policy without having to pay taxes

Fixed Annuities

provide guaranteed rate of return. interest payable for any given year is declared in advance by insurer and cant be less then a minimum specified in contract. investment risk is on insurer

13. An annuity is primarily used to provide

retirement income

Refund annuity

returns the difference between the annuity value and the income payments made to a beneficiary when the annuitant dies during distribution period

Flexible Premium Deferred Annuity

the periodic payments over time from deferred annuities; accumulate interest earnings on a tax-deferred basis and provide income payments at a future date, the periodic payments over time

14. If the annuitant dies before the annuity start date?

the premiums paid plus interest earned will be given to the beneficiary

Accumulation period

when payments are made by the contract holder and interest earnings are credited by the insurer. if annuitant dies during this period the beneficiary will receive the greater of the accumulated cash value or total premium paid.