7/4 Quiz: Uses of Annuities

Which of the following is not a use of annuities?

Tax must be paid on the interest earnings of annuities. The correct answer is: Tax-free income

Annuities have all of the following uses, EXCEPT:

Tax must be paid on the interest earnings of annuities. The correct answer is: To provide tax-free income

What is the term attributed to the balance of a deferred annuity paid to a beneficiary if the annuitant dies during the accumulation phase of a deferred annuity?

Death benefits are paid to the beneficiary if the annuitant dies during the accumulation phase of a deferred annuity. The total premiums paid or the cash value, whichever is greater, will be paid to the beneficiary. If no beneficiary has been named, then the annuitant's estate will receive the benefit. Although sometimes referred to as a death benefit, this is not a true death benefit in the sense of life insurance because the interest earned on the premium is taxable; whereas, in life insurance the death benefit is not taxable. The correct answer is: Death benefits

Nonforfeiture options are available to contract owners of all of the following, EXCEPT:

Nonforfeiture options are available to contract owners of deferred annuities, SPDA and FPDA, but not SPIA. The correct answer is: SPIA

All of the following statements are correct, EXCEPT:

Not all annuities are qualified. Some annuities are used to fund nonqualified retirement plans. The correct answer is: All annuities are qualified.

Which of the following is a personal use of annuities?

Personal uses of annuities include: life income, IRAs, cash accumulation, retirement income and education funds. The correct answer is: All of the above

All of the following statements regarding annuities are true, EXCEPT:

If the cash value of an annuity is taken in one lump-sum, the interest earned on the principal is taxable. The correct answer is: Upon annuitization, cash value taken in one lump-sum is not taxable.

All of the following are characteristics of tax-sheltered annuities, EXCEPT:

Money invested in tax-sheltered annuities is taxable upon distribution, not deposit. The correct answer is: Money invested in a tax-sheltered annuity is taxable upon deposit.

The surrender nonforfeiture option for annuities is:

Nonforfeiture options are available for deferred annuities if the contract owner chooses to surrender the annuity before the payout phase begins or to stop making premium payments. With the surrender option, the entire amount of premiums paid into the annuity, minus the surrender charges and prior withdrawals, will be refunded in a lump-sum. The correct answer is: An option for contract owners who want to surrender the annuity, and receive the entire amount of premiums paid into the annuity minus surrender charges and prior withdrawals

What portion of an annuity's death benefit is taxed?

The portion of the annuity death benefit that is taxed is the amount that exceeds the cost-basis (premiums accumulated during the pay-in period). The correct answer is: The portion that exceeds the cost-basis