Variable Annuities

The "AIR" (assumed interest rate) stated in a variable annuity prospectus is a: a. guaranteed fixed interest rate for the annuity b. guaranteed minimum interest rate for the annuity c. conservative illustration of an interest rate for the annuity d. guaranteed maximum interest rate for the annuity

c. conservative illustration of an interest rate for the annuity.

All of the following statements are true regarding both mutual funds and variable annuities EXCEPT: a. the return to investors is dependent on the performance of the securities in the underlying portfolio b. the investment company act of 1940 is the regulating legislation c. distributions from the underlying mutual fund are taxable to the holder in the year the distribution is made d. the underlying portfolios are managed

c. distributions from the underlying mutual fund are taxable to the holder in the year the distribution is made.

Which rollover would result in a tax event? a. exchange of one variable annuity contract for another variable annuity contract b. exchange of a life insurance contract for a variable annuity contract c. exchange of a variable annuity contract for a life insurance contract d. exchange of a life insurance contract for another life insurance contract

c. exchange of a variable annuity contract for a life insurance contract.

The owner of a variable annuity has all of the following rights EXCEPT the right to vote: a. for the board of trustees b. to change the separate account's investment objective c. for distributing income and capital gains d. for dissolution of the trust

c. for distributing income and capital gains.

All of the following are features of variable annuities EXCEPT: a. professional management b. right to vote for change in objectives c. insured against losses d. death benefits

c. insured against losses.

Which annuity payout option usually results in the largest periodic payment? a. unit refund annuity b. joint and last survivor annuity c. life annuity d. life annuity-period certain

c. life annuity.

A customer invests $30,000 in a variable annuity contract. Over the years, the contract grows to $60,000 in value. At age 65, the customer takes a $40,000 lump sum distribution from the contract. The tax consequence is: a. $40,000 non-taxable income b. $40,000 taxable income c. $10,000 taxable income; $30,000 non-taxable return of capital d. $30,000 taxable income; $10,000 non-taxable return of capital

d. $30,000 taxable income; $10,000 non-taxable return of capital.

Which of the following statements are TRUE about variable annuities? I. investment risk is carried by the issuer of the annuity II. salespeople must register with both FINRA and the state insurance commission III. annuity payments may be reduced because of increased expenses experienced by the insurance company IV. variable annuities are considered to be securities regulated by the investment company act of 1940 a. I and III b. II and IV c. II, III, IV d. I, II, III, IV

b. II and IV.

To sell a variable annuity, what license(s) is (are) needed? a. series 6 only b. series 7 only c. series 6 or series 7 d. series 6 or series 7 plus a state insurance license

d. series 6 or series 7 plus a state insurance license.

In order to recommend a variable annuity to a customer, which statements are TRUE? I. the customer must be informed, in general terms, of the material features of the product II. the representative must believe that the customer would benefit from the product III. the representative must believe that the variable product as a whole, the underlying separate accounts to which funds are allocated, and riders to the policy, are suitable IV. the representative must sign a statement that all required representations and determinations were completed a. I and II only b. III and IV only c. I, II, III only d. I, II, III, IV

d. I, II, III, IV.

Which statement is TRUE regarding a variable annuity offering a GMIB? a. the contract guarantees a minimum death benefit if the contract holder dies before the separate account is depleted b. the contract guarantees a minimum growth rate for the separate account at the time of annuitization c. the contract guarantees a minimum number of annuity payments d. the contract guarantees a maximum rate at which the contract expenses can grow

b. the contract guarantees a minimum growth rate for the separate account at the time of annuitization.

Variable annuity contracts contain which of the following guarantees? I. morality guarantee II. expense guarantee III. interest rate guarantee a. I only b. II only c. I and II c. I, II, III

c. I and II.

An accumulation unit of a variable annuity contract is a(n): a. share of common stock representing an interest in the underlying portfolio b. accounting measure of the owner's interest in the separate account c. accounting measure of the annuity amount to be received by the owner d. share of beneficial interest in a fixed portfolio

b. accounting measure of the owner's interest in the separate account.

Which is the BEST definition of an "annuity unit"? a. an accounting measure used to determine the number of units the contract holder may purchase in the separate account b. an accounting measure used to establish the contract holder's ownership interest c. an accounting measure upon which the amount of pay out is determined d. an accounting measure used to determine the contract holder's death benefit

c. an accounting measure upon which the amount of pay out is determined.

All of the following are true statements about variable annuities EXCEPT: a. the portfolio funding the separate account is professionally managed b. the portfolio is invested in other management company shares c. dividends and capital gains must be reinvested until annuitization occurs d. investors get an interest rate guarantee

d. investors get an interest rate guarantee.