chpt 10 series 7 - variable products

Dividends and capital gain distributions in a variable annuity are:

Allowed to accumulate on a tax-deferred basis

An accumulation unit in a variable annuity contract is:

An accounting measure that's used to determine the contract owner's interest in the separate account

During annuitization, a variable annuity owner will receive payments that are based on a:

Fixed number of annuity units

An investor is in the third year of accumulating an interest in a variable annuity that assesses a deferred sales charge. The investor's registered representative recommends for her to switch to a newly created variable annuity that offers a larger number of subaccount choices, also offered with a deferred sales charge. Which TWO of the following statements may be considered TRUE of this switch: FINRA will likely consider the switch unsuitable. FINRA will likely consider the switch suitable, since both annuities are offered with a deferred sales charge. The switch will be taxable if it qualifies as a 1035 exchange. The switch will not be taxable if it qualifies as a 1035 exchange.

I and IV

A 57-year old father was in the accumulation phase of his variable annuity when he passed away. What are the tax implications if the annuity is inherited by his son?

If liquidated, any amount above the cost basis is taxed as ordinary income to the son.

A variable annuity contract holder dies during the accumulation period. In this situation, which of the following statements is TRUE regarding the tax consequences?

Proceeds in excess of cost are taxable as ordinary income to the beneficiary

Within how many days of receipt must a principal approve or disapprove an application to purchase a variable annuity?

7 business days

Which of the following calculations describes the payout on a variable annuity?

A fixed number of annuity units multiplied by a variable dollar amount

Which of the following annuity settlement options would provide the longest stream of income over the lives of two individuals?

Joint and last survivor annuity

An individual has invested in a nonqualified variable annuity. If she withdraws the entire value of the annuity, the tax treatment will be:

Ordinary income on the amount in excess of the original investment

All of the following choices are defined as types of investment companies, EXCEPT:

Variable annuities

As far as variable annuities are concerned, which of the following statements is TRUE?

Variable annuity nonqualified separate accounts are registered under the Investment Company Act of 1940