Life Insurance Chapter 6 Annuities

Which of the following is NOT true regarding the annuitant? A The annuitant must be a natural person. B The annuitant cannot be the same person as the annuity owner. C The annuitant's life expectancy is taken into consideration for the annuity. D The annuitant receives the annuity benefits.

The annuitant cannot be the same person as the annuity owner. - While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person.

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

Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount - If an annuitant dies before annuitization, the beneficiary will receive either the amount paid into the plan or the cash value of the plan, whichever is greater.

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

Either the amount paid into the plan or the cash value of the plan, whichever is the greatest amount

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

Creating an estate - Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children's college education. Unlike life insurance, annuities do not create an estate, but liquidate it.

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

It is a life contingency option. - Under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option pays for a specific amount of time only, and there are no life contingencies.

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

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

Joint life - Joint life annuity settlement option pays benefits to two or more annuitants, but stops upon the death of the first.

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 Deferred annuity. B Pure annuity. C Joint life annuity. D Joint and survivor annuity.

Joint life annuity. - Joint life annuity settlement option pays benefits to two or more annuitants, but stops upon the death of the first.

Under a pure life annuity, an income is payable by the company A For a guaranteed period of time, whether or not the annuitant survives to the end of that period. B For as long as either the annuitant or a named beneficiary is alive. C Only for the life of the annuitant. D Until the principal and interest are exhausted.

Only for the life of the annuitant. - With pure life annuity, income payments cease at the annuitant's death and there is no refund or payments to survivors. This type of annuity is also referred to as Life Only or Straight Life.

If the annuitant dies during the accumulation period, who will receive the annuity benefits? A The annuity owner B The insurance company C The annuitant's estate D The beneficiary

The beneficiary - 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.

If a beneficiary is NOT named for annuity benefits, to which entity will the benefit be paid? A The next of kin B The state government C The insurance company D The annuitant's estate

The annuitant's estate - If an annuitant dies during the accumulation period, the beneficiary is paid either the cash value of the policy or the amount of premiums paid, whichever is the larger amount. If a beneficiary is not named, the money will be paid to the annuitant's estate.

The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE? A The owner's estate will receive the money paid into the annuity. B The insurance company will retain the cash value and pay back the premiums to the owner's estate. C The money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary. D The beneficiary will receive the greater of the money paid into the annuity or the cash value.

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.

The annuity owner dies during the accumulation period without naming a beneficiary. Annuity's cash value exceeds premiums paid. Which of the following is TRUE? A The cash value will be paid to the state government. B The cash value will be paid to the annuitant's estate. C The premium value will be paid to the annuitant's estate. D All benefits will be forfeited.

The cash value will be paid to the annuitant's estate - If an annuitant dies during the accumulation period, the beneficiary is paid either the cash value of the policy or the amount of premiums paid, whichever is the larger amount. In this case, a beneficiary is not named, so the cash value will be paid to the annuitant's estate.

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

2.5% - Insurance companies promise guaranteed minimums on the fixed annuities (2.5% in this scenario). This means that if the investments draw less than that, the company will have to pay 2.5% anyway. If the investments earn over 2.5%, the company will pay that excess.

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

Depreciation period - The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period.

Which of the following is NOT true regarding Equity Indexed Annuities? A They earn lower interest rates than fixed annuities. B The insurance company keeps a percentage of the returns. C They have guaranteed minimum interest rates. D They are less risky than variable 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.