Annuities

Life Contingency

Dependent upon whether or not the insured is alive

According to the nonforfeiture law, if the owner decides to surrender a deferred annuity prior to annuitization, the owner is entitled to which of the following?

(A) Full premium refund without any charges (B) Guaranteed surrender value * - The nonforfeiture law stipulates that a deferred annuity must have a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization (C) No payments (D) Annuity dividends

Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as a primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits?

(A) $50,000 * - The life policy would pay the face amount, but because of the settlement option selected on the annuity, payments would cease upon the annuitant's death. Straight life annuity payments stop at death of the annuitant regardless of the principal left in the account. (B) $62,500 (C) $75,000 (D) Nothing

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 *

Internal Revenue Service (IRS)

A U.S Government agency responsible for the collecting of taxes and enforcement of the Internal Revenue Code

Natural Person

A human beinf

Sustainability

A requirement to determine if an insurance product or an investment is appropriate for a particular customer

Qualified Plan

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

Liquidation of an Estate

Converting a person's net worth into a cash flow

Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity?

(A) Investment performance of the company (B) Investment performance of the insured (C) Statewide predetermined annual interest rate (D) Insurer's guarantee minimum rate of interest * - With fixed annuities, the company is required to pay at least a guaranteed minimum rate of interest to the owners. If the company investments perform well, the company will pay a higher interest rate, but since the interest rate can never fall below the guaranteed minimum, that's what ultimately determines what the company will pay

Which of the following is NOT true regarding the accumulation period of an annuity?

(A) It is the period during which the annuity payments earn 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 * - 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 of the following is TRUE regarding the annuity period?

(A) It may last for the lifetime of the annuitant * - The "annuity period" is the time during which the accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected. (B) During this period of time, the annuity payments grow interest tax deferred (C) It is also referred to as the accumulation period (D) It is the period of time during which the annuitant makes premium payments into the annuity

What license or licenses are required to sell variable annuities?

(A) Only a life insurance policy (B) Only a securities license (C) No license is required (D) Both a life insurance license and a securities license * - Agents are required to have both a life insurance license and a securities license to sell variable annuities

A couple near retirement is planning for their golden years. They want to make sure that their retirement annuity provides monthly benefits for the rest of their lives. Should one of them die, the other would like to still continue receiving benefits. Which settlement option should they choose?

(A) Straight life (B) Joint and survivor * - This option guarantees an income for two or more recipients that none of them can outlive (C) Joint Life (D) Life with period certain

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 * - Often, the annuitant and the annuity owner are the same person. The annuitant is the person who receives the benefits or payments from the annuity and for home the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person. (C) The annuitant's life expectancy is taken into consideration for the annuity (D) The annuitant receives the annuity benefits

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 * - They receive either the amount paid into the plan or the cash value- whichever is greater

The main difference between immediate and deferred annuities is...

(A) The number of insureds (B) The amount of each payment (C) When the income payments begin * - Immediate annuities will begin payments within the first year, while deferred annuities will not begin payments until sometime after the first year (D) How the annuity is purchased

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 premium 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 amount of money paid into the annuity or the cash value * - They beneficiary receives whichever amount is greater of the two.

Which of the following best describes what the annuity period is?

(A) The period of time from the accumulation period to the annuitization period (B) The period of time during which money is accumulated in an annuity (C) The period of time from the effective date of the contract to the date of its termination (D) The period of time during which accumulated money is converted into income payments * - The annuity period is the time during which accumulated money is converted into an income stream

Which of the following is TRUE for both equity indexed annuities and fixed annuities?

(A) They have a guaranteed minimum interest rate * - While equity indexed annuities earn higher interest rates than fixed annuities, both types guarantee a specific minimum interest rate. (B) The are both tied to an equity index (C) Both are considered to be more risky than variable annuities (D) They invest on a conservative basis

Annuities can be used to fund which of the following?

(A) Variable life insurance (B) Group life insurance (C) Estate creation (D) Retirement plans * - Since annuities are a popular means to provide retirement income, they are often used to fund qualified retirement plans

Deferred

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