Chapter 9: Annuities (Life Only)
Upon receiving distributions from the contract
When does interest income for a flexible premium deferred annuity get reported for federal income taxes?
Not distributed to life annuitants who died before life expectancy
Sarah, age 88, is a life annuitant who has lived beyond her life expectancy. The funds for additional benefit payments will be derived from funds that were
Capital liquidation
Taking a sum of money and decreasing it in size is called
owner
The authority to change the beneficiary in an individual annuity lies with the
Annuitant
A single-life annuity only has ONE
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 loan referred to as?
Make additional payments into the annuity
The owner of a single premium deferred annuity is entitled to do all of these EXCEPT
When the contract has been held for the period specified in the policy
Under which circumstance is the interest rate guaranteed within a market value adjusted annuity?
Surrender charges
Which of these annuity contract features is meant to discourage withdrawals and exchanges?
When the contract is annuitized
Which event triggers a deferred annuity to start making benefit payments to the annuitant?
informally funding a non-qualified deferred compensation plan
A business may purchase an annuity for all of the following EXCEPT
Group deferred annuity
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?
Period certain
A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called
guaranteeing benefit payments for a stated minimum number of years
A life annuity with period certain is characterized as
Fixed amount
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?
Immediate annuity
An annuity which starts paying monthly benefits within a month after issuance is called a(n)
continue after the purchase payments stop
An annuity's accumulation period can usually
receives benefit payments at regular intervals
During an annuities liquidation phase, the annuitant normally
Annuitant
During the liquidation phase of an annuity contract, to whom are the income benefits normally payable to?
Joint and survivor annuity
A retired couple would like to maximize the income derived from their life savings and have it payable until they both die. Which annuity would be their best choice?
If the interest rate falls below a specified level, the surrender charge is waived
A single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct?
Mary
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?
remain a constant dollar amount for the duration of the annuity period
Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will
Investment risk is assumed by the purchaser
When compared to a fixed annuity, a variable annuity has what distinguishing feature?
nonforfeiture options
The contractual rights that allow the owner of a deferred annuity to surrender the cash value several years before the annuity date are called
The amount of an annuity payment subject to income tax
The exclusion ratio determines
tax deferred
The interest collected to the cash values of personally-owned non-qualified annuities is considered
annuitant dies or becomes disabled
The surrender charge on many deferred annuity contracts are waived when the
Life income
What is another term for a "pure" life annuity?
$200,000
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?
Owner
When a deferred annuity is surrendered, who must sign the authorization to do so?
Deferred annuity
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?
contract guaranteed rate
Interest is credited to a fixed annuity no lower than the
Taxed as ordinary income in the year received.
How are monthly life annuity benefit payments treated under a tax sheltered annuity (TSA)?
Reflects changes in the market value of assets in a separate account
How do benefit payments fluctuate over time in a variable life annuity?
The market value variations of the securities backing it
What determines how much an annuitant is paid for a variable annuity?
single premium deferred annuity
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)
Group deferred annuity
The administrator for a corporate pension plan bought an accumulation annuity contract for its 2,000 employees. All 2,000 employees received certificates of participation. What kind of contract is this?
makes only one premium payment
The annuitant in a single premium deferred annuity (SPDA)
taxable as ordinary income
The interest paid during an annuity's payout period is considered
create a stream of income
The main purpose of an annuity is to
total premiums paid
The owner's cost basis for a non-qualified deferred annuity is typically the same as
Fixed life annuity with period certain
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?
savings depletion due to longevity
What does a fixed life annuity offer protection against?
Subject to market value adjustment
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
Decreases
What happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up?
Transfers some of the investment risk to the policyowner
What is the effect of the market value adjustment in a market value adjustment annuity?
Benefit payments are always fully taxable
What is the tax treatment of benefit payments for a non-qualified annuity?
An immediate annuity
When a large sum of money is used to structure monthly payments, which product is typically used?
decrease in size
When a sum of money undergoes capital liquidation, that sum will
Final contract settlement will be reduced
When an annuity has been fully surrendered, how will the surrender charges affect the final contract settlement?
expenses and withdrawals
When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest minus
Time of purchase
When does the owner's contractual rights begin under an individual annuity contract?
Deferred
Which annuity allows contributions to an IRA?
Protection against long term inflation.
Which benefit can be found in an equity indexed annuity, but not a fixed annuity?
Ages 71 and 73
Which of the co-annuitants listed below would receive the largest monthly benefit payments in a joint and 100% survivor annuity?
Flexible premium fixed annuity
Which of the following contracts offer deferred taxation, flexible payments, a guaranteed interest rate, and death benefits equal to the cash value?
An annuity exchanged for a life insurance policy
Which of the following is NOT a valid contract exchange?
Create new funds upon the death of a wage-earner
Which of the following is NOT an intended use of an annuity?
Lack of accumulation period.
Which of the following is associated with an immediate annuity?
a parent saving for a child's college
Which of the following would NOT be appropriate for an immediate annuity?
Retiree having a lump sum to invest
Which of the following would most likely purchase an immediate annuity?
Joint and survivor annuity
Which of these pays an income to two or more annuitants until the death of the last annuitant?
The owner can be the beneficiary, annuitant, or neither
Which statement concerning a deferred annuity contract is correct?
Annual investment gains are included in participant's gross income
Which statement is INCORRECT concerning tax-sheltered annuity (TSA)?
Owner
Who typically makes the purchase payments in an individual annuity?