ExamFX Chapter 5
In an annuity the accumulated money is converted into a stream of income during which time period
Annuitization period The "annuitization period" (annuity period) is the time during which accumulated money is converted into an income stream.
What license is required to sell annuities
Both life insurance and securities license
If an annuitant dies before annuitization occurs, what will the beneficiary receive?
Either the amount paid into the plan or the cash value of the plan whichever is greater
Fixed annuities provide all of the following EXCEPT
Hedge against inflation Fixed annuities invest premium payments into a general account - a safe and conservative investment portfolio. They also provide a specified dollar amount for each annuity payment regardless of the purchasing power of the money. Variable annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, and therefore providing protection against inflation.
Someone wins the lottery, they will receive a check for the next 25 years. what type of annuity products will they use to provide these benefits
Immediate annuity An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.
Under which of the following annuity options does the annuitant select the time period for the benefits and the insurer determines how much each payment will be
Installments for a fixed period Under the "installments for a fixed period" option, the annuitant selects the time period for the benefits, and the insurer determines how much each payment will be. This option pays for a specific period of time only, and there are no life contingencies.
What is not true regarding the accumulation period of an annuity?
It would not occur in a deferred annuity The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity).
What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death?
Pure life A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors.
Which type of annuities will generally provide the highest monthly income?
Straight life Pure or straight life annuity settlement option will only pay for as long as the annuitant lives; therefore, it has the potential to provide the highest monthly income. Any time a "period certain" option is included, it will reduce the monthly payout amount because, even if the annuitant dies, the company must continue to pay benefits for the period certain.
your client is planning to retire. She has 100,000 in a retirement annuity, and now wants to select the benefit option that will pay the largest monthly amount for as long as she lives. as her agent you would recommend
Straight life With the straight life option, the annuity payments cease at death. However, because there are no other guarantees that might incur additional charges, this option provides the highest monthly benefits for an individual annuitant.
In a fixed annuity, which of the following is true regarding the guaranteed interest rate on the investment?
The annuitant will receive the higher of either the guaranteed minimum rate or current rate. With a fixed annuity, the insurer invests the principal and gives the annuitant a guaranteed interest rate based on a minimum rate specified in the annuity, or current interest rate, whichever is higher.
The annuitant dies as the annuity is still in the accumulation phase. what is true
The beneficiary will receive the greater of the money paid into the annuity or the cash value. If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value, whichever is greater.
All of the following statements are true regarding installments for a fixed amount except
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.
What is not true regarding equity indexed annuities
They earn lower interest rates than fixed annuities. Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.
Who bears the investment risk in a fixed annuity?
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 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 insure a guaranteed rate to the annuity owners.