Insurance License Training: Annuities

Life contingency

Dependent upon whether or not the insured is alive

Flexible Premium

the amount and frequency of each installment varies

Which of the following best describes what the annuity period is? A. The period of time from the effective date of the contract to the date of its termination. B. The period of time during which accumulated money is converted into income payments. C. The period of time from the accumulation period to the annuitization period. D. The period of time during which money is accumulated in an annuity

B. The period of time during which accumulated money is converted into income payments.

Liquidation of an estate

converting a person's net worth into a cash flow

Underlying Investment

the payments that the annuitant makes into the variable annuity are invested in the insurer's separate account, not their general account

annuity

A contract that provides income for a specified period of years, or for life.

Annuity contracts grow tax-deferred. That means that A. There is no current income taxation upon the growth in the annuity. B. The annuitant's contributions are not taxed until the annuity is surrendered. C. As the annuity grows, only the interest is taxed. D. Upon surrender, all benefits are received tax free.

A. There is no current income taxation upon the growth in the annuity.

Which of the following products require a securities license? A. Variable annuity B. Fixed annuity C. Equity Indexed annuity D. Deferred annuity

A. Variable annuity

annuity period

The time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant.

Life with Period Certain

When policy owner wants to get income for life but also wants to guarantee that a survivor gets a benefit if he dies for a certain period of time; made in 5,10,15 and 20 years option

Suitability

a requirement to determine if an insurance product is appropriate for a customer

Life with Guaranteed Minimum

established and designed to guarantee the distribution of the annuity's funds, whether it is paid to the annuitant, or to a designated beneficiary upon the annuitant's death. Four of the five annuity payout options include some type of guaranteed return of the annuity's benefit payments.

Joint and Survivor Annuity

pays benefits based on the lives of two or more annuitants. The annuity income is paid until the last annuitant dies

Accumulation Period

the period of time over which the owner makes payments (premiums) in an annuity.

Deferred

withheld or postponed until a specified time or event in the future

Deferred Annuity

An annuity in which the income payments begin sometime after one year from the date of purchase. can be purchased either with a lump-sum payment or periodic payments from year to year.

According to the nonforfeiture law, the owner decides to surrender a deferred annuity prior to annuitization, the owner is entitles to which of the following? A. Full premium refund without any charges B. Guaranteed surrender value C. No payments D. Annuity dividends

B. Guaranteed surrender value

After three years of making payments into a flexible premium deferred annuity, the owner decides to surrender the annuity. The insurer returns all the premium payments to the owner, except for a predetermined percentage. What is this percentage called? A. Inflation adjustment B. Surrender charge C. Termination penalty D. Bail-out charge

B. Surrender charge

Which of the following best describes a bail-out provision? A. It waives the surrender charge for the annuitants confines to a long-term facility. B. It allows the owner to receive a higher interest rate at a certain timeframe. C. It decreases the annuity surrender value. D. It allows the owner to surrender the annuity without a charge.

D. It allows the owner to surrender the annuity without a charge.

An insurance company forwards fixed annuity premiums to their general account, where the money is invested. The guaranteed minimum interest is set at 2.5%. During an economic downswing, the investments only drew 2%. What interest rate will the insurer pay to its policyholders? A. 2% B. 2.5% C. 3% D. Whatever interest rate the company deems appropriate

B. 2.5%

cash refund

When the annuitant dies, the beneficiary receives a lump sum refund of the principal minus benefit payments already made to the annuitant. Cash refund option does not guarantee to pay any interest

installment refund

When the annuitant dies, the beneficiary will continue to receive guaranteed installments until the entire principal amount has been paid out.

Which of the following is NOT true regarding the accumulation period of annuity? A. It is the period during which annuity payments warn interest. B. It is the period over which the owner makes payments into an annuity. C. It is also known as the pay-in period. D. It would not occur in a deferred annuity.

D. It would not occur in a deferred annuity.

If an annuitant dies before annuitization occurs, what will the beneficiary receive? A. Either the amount paid into the plan or cash value of the plan, whichever is the lesser amount B. Amount paid into the plan C. Cash value of the plan D. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount

D. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount

Multiple Life Annuities

cover 2 or more lives. Two of the multiple life annuities are joint and survivor and joint life.

An agent selling variable annuities must be registered with A. FINRA B. Department of Insurance C. The Guaranty Association D. SEC

A. FINRA

When a fixed annuity owner pays his/her insurance company a monthly annuity premium, where is this money placed? A. The insurance company's general account B. Forwarded to an investor C. Each contract's separate account D. The annuity owner's account

A. The insurance company's general account

Who is responsible for implementing a system that monitors and supervises agent recommendations regarding annuity suitability? A. The insurer B. The Virginia Insurance Guaranty Association C. Individual agents D. The Insurance Commissioner

A. The insurer

Annuity contracts grow tax deferred. That means that: A. There is no current income taxation upon the growth in the annuity. B. The annuitant's contributions are not taxed until the annuity is surrendered. C. As the annuity grows, only the interest is taxed. D. Upon surrender, all benefits are received tax free.

A. There is no current income taxation upon the growth in the annuity.

What license or licenses are required to sell variable annuities? A. No license is required B. Both life insurance license and securities license C. Only a life insurance license D. Only a securities license

B. Both life insurance license and securities license

Which of the following statements regarding annuities is correct? A. Deferred annuities pay a lump sum at retirement. B. Annuities are not suitable for retirement. C. Annuities provide income that the annuitant cannot outlive. D. Annuities are for business use only.

C. Annuities provide income that the annuitant cannot outlive.

Which of the following is TRUE regarding variable annuities? A. The company guarantees a minimum interest rate. B. A person selling variable annuities is required to have only a life agent's license. C. The annuitant assumes the risks on investment. D. The funds are invested in the company's general account

C. The annuitant assumes the risks on investment.

Periodic payments

premiums are paid in installments over a period of time

Which of the following will NOT be an appropriate use of a deferred annuity? A. Creating an estate B. Accumulating retirement funds C. Accumulating funds in an IRA D. Funding a child's college education

A. Creating an estate

IRS

Internal Revenue Service: a U.S. Government agency responsible for collecting of taxes, and enforcement of the Internal Revenue Code

Which of the following is NOT about a joint and survivor annuity benefit option? A. The surviving annuitant may receive reduced payments. B. Payments stop after the first death among the annuitants. C. A period certain option may be included. D. This option guarantees income for two or more recipients.

B. Payments stop after the first death among the annuitants.

Which of the following provisions in annuity contracts allow the owner to surrender the annuity if interest rates drop to a specified level? A. Annuitization B. Bail-out C. Surrender D. Nonforfeiture

B. Bail-out

Which of the following is NOT a term for the period of time during which the annuitant or beneficiary receives income? A. Liquidation period B. Depreciation period C. Annuitization period D. Pay-out period

B. Depreciation period

All of the following are true of an annuity owner EXCEPT: A. The owner has the right to name a beneficiary. B. The owner is the party who may surrender the annuity. C. The owner must be the party to receive benefits. D. The owner pays the premiums on the annuity.

C. The owner must be the party to receive benefits.

Accumulation Units

- Typically is a function of the after-tax interest earned, dividends received and capital gains (or losses) incurred, minus investment expenses associated with the insurer equity investment portfolio supporting the annuity

joint life

A payout arrangement where two or more annuitants receive payments until the first death among the annuitants, and then payments stop.

Qualified plan

A retirement plan that meets the IRS guidelines for receiving favorable tax treatment.

If a contract provides a set amount of income for two or more persons with the income stopping upon the first death of the insured, it is called a A. Joint life annuity B. joint and survivor annuity C. Deferred annuity D. Pure annuity

A. Joint life annuity

A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select? A. Joint annuity B. Cash refund annuity C. Straight life D. Joint and survivor

D. Joint and survivor

Annuities can be used to fund which of the following? A. Variable life insurance B. Group life insurance C. Estate creation D. Retirement plans

D. Retirement plans

Market Value Adjusted Annuity (MVA)

a single-premium deferred annuity that allows the owner to lock in a guaranteed interest rate over a specified maturity period, anywhere between 3 to 10 years

License requirements

a variable annuity is considered a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. An agent selling variable annuities must also be properly registered with FINRA.

Bail-Out Provision

allows the contract holder, in the event that interest rates drop a specified amount within a specified time frame to surrender the contract without charge

single life annuity

covers one life and annuity payments are made with reference to one life only

Immediate Annuity

purchased with a lump sum, and the payout of benefits usually commences within 30 days Most common- Single Premium Immediate Annuity (SPIA)

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? A. Installments for a fixed amount B. Installment refund C. Cash refund D. Installments for a fixed period

D. Installments for a fixed period

Interest Rate

issuing insurance company does not guarantee a minimum interest rate

Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity? A. Statewide predetermined annual interest rate B. Insurer's guaranteed minimum rate of interest C. Investment performance of the company D. Investment performance of the insured

B. Insurer's guaranteed minimum rate of interest

What happens if a deferred annuity is surrendered before the annuitization period? A. The owner will only receive a refund of premium. B. The insurer can only apply the surrendered prior to the annuitization period. C. Deferred annuities cannot be surrendered prior to the annuitization period. D. The owner will receive the surrender value of annuity.

D. The owner will receive the surrender value of annuity.

level premium

the annuitant/owner pays a fixed installment

Short term annuities

limit the amounts paid to a certain fixed period or until a certain fixed amount is liquidated

Indexed (or equity indexed) annuities

fixed annuities that invest on a relatively aggressive basis to aim for higher returns

single premium

one time lump sum payment

All of the following statements are true regarding installments for a fixed amount EXCEPT: A. This option pays a specified amount until funds are exhausted B. The annuitant may select how big the payments will be. C. The payments will stop when the annuitant dies. D. Value of the amount and future earnings will determine the time period for the benefit.

C. The payments will stop when the annuitant dies.

When an annuity is written, whose life expectancy is taken into account? A. Annuitant B. Beneficiary C. Life expectancy is not a factor when writing an annuity. D. Owner

A. Annuitant

All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT: A. The insurer determines the amount for each payment. B. It is a life contingency C. It will pay the benefit only for a designated period of time. D. The payments are not guaranteed for life.

B. It is a life contingency

Which of the following annuity features makes it a suitable source of retirement income? A. Annuity payments are tax deferred. B. Annuities may provide income the annuitant cannot outlive. C. Annuity withdrawals are tax free. D. Withdrawals are made on last in first out basis.

B. Annuities may provide income the annuitant cannot outlive.

Variable Annuity

Annuity that has a varying rate of return based on the mutual funds in which one has invested

If an annuitant dies before annuitization occurs, what will the beneficiary receive? A. Cash value of the plan B. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount. C. Either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount D. Amount paid into the plan

B. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount.

The president of a company is starting an annuity and decides that hos corporation will be the annuitant. Which of the following statements is true? A. The contract can be issued without an annuitant. B. The annuitant must be a natural person. C. A corporation can be an annuitant as long as it is also the owner. A. A corporation can be an annuitant as long as the beneficiary is a natural person.

B. The annuitant must be a natural person.

A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy? A. Joint and survivor B. Life with period certain C. Joint limited annuity D. Joint life

D. Joint life

Natural person

a human being

Pure-life (life-only or straight life)

payment ceases the the annuitant's death (no matter how soon in the annuitization period that occurs) provides highest monthly benefits and an individual annuitant