Pennsylvania Life Insurance Exam - Annuities

A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). The total amount paid into it over the years is $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today? $200,000 $80,000 $120,000 $0

$80,000

Which of the following features a guaranteed interest rate, flexible payments, deferred taxation, and death benefits equal to the cash value? Variable life policy Modified life policy Flexible premium fixed annuity Immediate fixed annuity

Flexible premium fixed annuity

When does the owner's contractual rights begin under an individual annuity contract? Purchase date When the benefit period begins When the accumulation period ends After free-look period expires

Purchase date

Who would have the best need for an immediate annuity? Retiree wanting a tax-free stream of income Individual wanting to accumulate an investment over time Retiree having a lump sum to invest Business needing an immediate tax write-off

Retiree having a lump sum to invest

What does a fixed life annuity offer protection against? Inflation Premature death Inadequate retirement planning Savings depletion because of longevity

Savings depletion because of longevity

Which statement concerning a deferred annuity is correct? The contract cannot be assignable by the owner Requires a single premium payment The owner can be the beneficiary, annuitant, or neither Benefits start immediately after contract formation

The owner can be the beneficiary, annuitant, or neither

What is the effect of the market value adjustment in a market value adjustment annuity? Transfers the tax liability to the owner Allows owner to periodically adjust the investment risk Transfers some of the investment risk to the owner No effect

Transfers some of the investment risk to the owner

Under which circumstance is the interest rate guaranteed within a market value adjusted annuity? When the contract has been in force for a stated time period For the entire length of the contract Never When the cash value has reached a stated minimum amount

When the contract has been in force for a stated time period

What triggers a deferred annuity to start making benefit payments? When the owner dies When the contract's cash value exceeds the cost basis When the contract is annuitized Cash surrender of the annuity

When the contract is annuitized

When does interest income in a deferred annuity get reported for federal income taxes?

When the distributions are received

What happens to the cash value of a market value adjusted annuity if it's surrendered early? Market value adjustment is applied Subject to no adjustments Subject to a surrender charge only Cash value is forfeited

Market value adjustment is applied

The interest paid during an annuity's payout period is considered nontaxable taxable as ordinary income taxable as capital gains tax-deductible

taxable as ordinary income

Based on age criteria only, which of the co-annuitants listed below would receive the largest monthly benefit payments in a joint and survivor annuity? Ages 70 and 72 Ages 60 and 80 Ages 71 and 73 Ages 69 and 71

Ages 71 and 73

When a large sum of money is used to structure monthly payments, which product is typically used? A 401(k) plan A 403(b) plan A deferred annuity An immediate annuity

An immediate annuity

Which statement is INCORRECT concerning a tax-sheltered annuity (TSA)? Participants make payments from salary reductions Normally used by charitable, educational, and religious organizations Also known as 403(b) plans Annual investment gains are included in participant's gross income Submit Reset

Annual investment gains are included in participant's gross income

To whom are annuity payments made to during the liquidation phase? Trustee Beneficiary Policyowner Annuitant

Annuitant

What happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up? Increases Decreases Not affected by inflation Tied to stock index

Decreases

How do benefit payments fluctuate over time in a variable life annuity? Benefit payments stay fixed Depends on market value changes in the separate investment account Annuitant controls any benefit payment changes Any benefit payment fluctuations have to be approved in writing by the owner

Depends on market value changes in the separate investment account

What determines how much an annuitant is paid for a variable annuity? Varies according to how many outstanding annuity units Payments fluctuate as annuitant gets older Fluctuates according to the market value of the underlying securities in a separate account Varies according to the insurer's investments in its general account

Fluctuates according to the market value of the underlying securities in a separate account

A large corporation purchases an annuity contract that accumulates over time. If all the employees participate and receive certificates of participation, what is this contract called? 403(b) plan Group deferred annuity Group immediate annuity Joint and survivor group plan

Group deferred annuity

A single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct? If the interest rate falls below a certain level, the surrender charge is waived If the interest rate rises above a certain level, the surrender charge is waived It allows the Life and Health Guaranty Association to bailout the insolvent insurer A reinsurer will make the remainder of the annuity payments if the original insurance company becomes insolvent

If the interest rate falls below a certain level, the surrender charge is waived

When compared to a fixed annuity, a variable annuity has what distinguishing feature? Flexible premiums according to a stock index Investment risk is assumed by the policyowner Investment risk is assumed by the insurer Payout option can be changed after the accumulation phase

Investment risk is assumed by the policyowner

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? Fixed Survivorship Joint life Joint and survivor

Joint and survivor

Which of these pays an income to two or more annuitants until the death of the last annuitant? Joint life annuity Deferred survivor annuity Joint and survivor annuity Survivorship annuity

Joint and survivor annuity

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? John Mary Tom Mary's estate

Mary

When an annuity is surrendered, who must sign the authorization to do so? Owner Annuitant and beneficiary Annuitant All parties involved

Owner

Which benefit can be found in an equity indexed annuity, but not found in a fixed annuity? Protection against living too long Equity loans A fixed rate of return Protection against inflation

Protection against inflation

Which of these would NOT be a suitable situation for an immediate annuity? A lottery winner who opted for a lump-sum payment Setting up a college savings fund for a young child A beneficiary collecting the face amount of a life insurance policy Someone who just won a large settlement

Setting up a college savings fund for a young child

Which of these annuity features is meant to discourage withdrawals and exchanges?

Surrender charges

How are monthly life annuity benefit payments treated under a tax sheltered annuity (TSA)? Taxed as a capital gain during the accumulation period Taxed as ordinary income during the accumulation period Taxed as ordinary income in the year received Received tax-free to all recipients

Taxed as ordinary income in the year received

When dealing with single-life annuities, there is only one annuitant benefit payment premium payment beneficiary

annuitant

Taking a sum of money and decreasing it in size would fit the description of capital gains capital appreciation capital liquidation capital sum

capital liquidation

An annuity's accumulation period can usually continue after the purchase payments stop be lengthened after the benefit payments start continue when the annuitant dies be shortened after the annuity has been surrendered

continue after the purchase payments stop

The interest rate on a fixed annuity does not fall below the variable contract rate guaranteed contract rate the current rate of inflation the prime rate

guaranteed contract rate

A life annuity with period certain is characterized as guaranteeing benefit payments for a stated period of time after reaching age 65 guaranteeing a minimum interest rate guaranteeing lifetime benefit payments for two or more people guaranteeing benefit payments for a stated period of time

guaranteeing benefit payments for a stated period of time

An annuity which starts paying benefits within a month after issuance is called a(n)

immediate annuity

The owner of a single premium deferred annuity is entitled to do all of these EXCEPT make multiple premium payments choose the length of the payout period choose who will be the recipient of the annuity payments cash surrender the contract

make multiple premium payments

The contractual rights that allow the owner of a deferred annuity to surrender the cash value are called nonforfeiture options settlement options conversion options surrender options

nonforfeiture options

Who typically makes the purchase payments in an individual annuity? Policyowner Trustee Insurer Beneficiary

olicyowner

The power to change the beneficiary in an individual annuity lies with the annuitant owner beneficiary administrator

owner

An owner has a life annuity which provides benefit payments for a minimum time period, no matter when the annuitant dies. The feature of this annuity is called fixed period period certain installment refund straight life

period certain

An owner's cost basis for a deferred annuity is typically the same as the

premiums paid into the annuity

During an annuity's liquidation phase, the annuitant normally receives nothing receives benefit payments at stated intervals can borrow against the cash value can increase the premium payout period

receives benefit payments at stated intervals

The annuitant in a single premium deferred annuity (SPDA) receives immediate benefit payments makes only one premium payment receives deferred benefit payments is also the beneficiary

receives immediate benefit payments

The back-end charge typically associated with an annuity that has been surrendered too early is called a back-end assessment cancellation fee surrender charge tax penalty

surrender charge

The interest earned on the cash value of an individually-owned annuity is considered to be a tax credit tax-deferred tax-deductible tax-exempt

tax-deferred

When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest, and then subtracting the bailout option charge surrender charges taxes owed withdrawals and expenses

withdrawals and expenses