Ch. 7: Annuities

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 primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits

$50,000

All of the following employees may use a 403(b) plan for their retirement EXCEPT

CEO of private corporation.

Which of the following statements is INCORRECT regarding IRAs

Married couples are required to purchase a jointly owned IRA.

Which of the following products requires a securities license?

Variable annuity

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

beneficiary

What qualifies an individual to contribute to an IRA?

earned income

All of the following statements about equity index annuities are correct EXCEPT

the annuitant receives a fixed amount of return

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?

2.5%

An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n)

403(b) Plan (TSA)

What is the penalty for excessive contributions to an IRA?

6%

Who would be eligible to contribute to an IRA?

A 50-year old school teacher. Anyone with earned income who has not attained age 70 1/2 can have an IRA. Unemployment benefits would not be considered "earned income".

The minimum interest rate on an equity indexed annuity is often based on

An index like Standard & Poor's 500.

When an annuity is written, whose life expectancy is taken into account?

Annuitant

If a beneficiary is NOT named for annuity benefits, to which entity will the benefit be paid?

Annuitants estate

In an annuity, the accumulated money is converted into a stream of income during which time period?

Annuitization period

Which of the following products provides income for a specified period of years or for life, and protects a person against outliving his or her money?

Annuity

Which of the following is a short-term annuity that limits the amounts paid to a certain fixed period or until a certain fixed amount is liquidated?

Annuity certain

Who is eligible to purchase an IRA?

Anyone under the age of 70 1/2 who has earned income

In general terms, IRA contributions

Are tax deductible

Which of the following is a feature of a variable annuity?

Benefit payment amounts are not guaranteed

Which of the following is NOT true regarding an annuity certain?

Benefits stop at the annuitant's death.

All of the following statements are true of a nonqualified retirement plan EXCEPT

Contributions are tax exempt

Which of the following is NOT a legitimate use of annuities by businesses?

Creating a tax shelter

Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?

Depreciation period

If an annuitant dies before annuitization occurs, what will the beneficiary receive?

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

An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n

Equity indexed annuity

An agent selling variable annuities must be registered with

FINRA

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?

Guaranteed surrender value.

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?

Immediate annuity

An individual works for a manufacturing company. If he decides to fund a retirement plan for himself, for which of the following plans could he qualify?

Individual retirement account

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

Insurer's guaranteed minimum rate of interest

Which of the following is NOT true regarding the Life with Guaranteed Minimum annuity settlement option?

It does not guarantee that the entire principal amount will be paid out.

Why is an equity indexed annuity considered to be a fixed annuity?

It has a guaranteed minimum interest rate.

All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT

It is a life contingency option.

Which of the following is try regarding the accumulation period of an annuity

It is a period during which the payments into the annuity grow tax deferred

Which of the following is TRUE regarding the annuity period?

It may last for the lifetime of the annuitant

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

It would not occur in a deferred annuity.

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?

It'll go to their estate

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?

Joint Life

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 still like to continue receiving benefits. Which settlement option should they choose?

Joint and survivor

The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called

Life income with period certain

If an annuitant selects the straight life annuity settlement option, in order to receive all of the money out of the contract, it would be necessary to

Live at least to his life expectancy.

Which of the following statements is INCORRECT concerning an IRA?

Married individuals must contribute into one account for both spouses, up to a specified amount for each person.

Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive

Nothing; the payments will cease.

Under a pure life annuity, an income is payable by the company

Only for the life of the annuitant

Which of the following can surrender a deferred annuity contract?

Only the annuity owner

Which of the following is NOT true about a joint and survivor annuity benefit option?

Payments stop after the first death among the annuitants.

Equity indexed annuities

Seek higher returns

Which two terms are associated directly with the way an annuity is funded?

Single payment or periodic payments

Which of the following types of annuities will generally provide the highest monthly income?

Straight life

Your client is planning to retire. She has accumulated $100,000 in a retirement annuity, and now wants to select the benefit option that will pay the largest monthly amount for as long as she lives. As her agent, you should recommend

Straight life

After three years of making payments into a flexible premium deferred annuity, the owner decides to surrender the annuity. The insurer returns all the premium payments to the owner, except for a predetermined percentage. What is this percentage called?

Surrender charge

The advantage of qualified plans to employers is

Tax-deductible contributions

Which of the following is TRUE regarding variable annuities?

The annuitant assumes the risks on investment

The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true?

The annuitant must be a natural person.

In a fixed annuity, which of the following is true regarding the guaranteed interest rate on the investment?

The annuitant will receive the higher of either the guaranteed minimum rate or current rate.

What determines the penalty for surrendering a market value adjusted annuity prematurely?

The current interest rate at the time of surrender

The term "fixed" in a fixed annuity refers to all of the following EXCEPT

The death benefit

When a fixed annuity owner pays pays a monthly annuity premium to the insurance company, where is this money placed?

The insurance company's general account

All of the following are true of an annuity owner EXCEPT

The owner must be the party to receive benefits.

What happens if a deferred annuity is surrendered before the annuitization period?

The owner will receive the surrender value of the annuity.

All of the following statements are true regarding installments for a fixed amount EXCEPT

The payments will stop when the annuitant dies.

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

The period of time during which accumulated money is converted into income payments

If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined?

The surrender charge is a percentage of the cash value and decreases over time.

How are contributions to a tax-sheltered annuity treated with regards to taxation?

They are not included as income for the employee, but are taxable upon distribution.

Which of the following is NOT true regarding Equity Indexed Annuities?

They earn lower interest rates than fixed annuities.

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

They have a guaranteed minimum interest rate.

As it pertains to IRA eligibility, which of the following would NOT be considered earned income?

Unemployment benefits

Under which installments option does the annuitant select the amount of each payment, and the insurer determines how long they will pay benefits?

a fixed amount

All of the following information about a customer must be used in determining annuity suitability EXCEPT

beneficiary's age

What license or licenses are required to sell variable annuities?

both a life insurance license and a securities license

A tax-sheltered annuity is a special tax-favored retirement plan available to

certain groups of employees only a tax sheltered annuity is a special tax favored retirement plan available only to certain groups of employees (nonprofit, education, other 501c3 organizations, including all employees in public education.)

Which of the following will NOT be an appropriate use of a deferred annuity?

creating an estate Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children's college education.

An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin after 1 year since the annuity was purchased. What type of annuity is it?

deferred

Fixed annuities provide all of the following EXCEPT

hedge against inflation

A man purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it?

immediate- With an immediate annuity, distribution starts within 1 year of purchase

Who bears all of the investment risk in a fixed annuity?

insurance company

Which of the following is another term for the accumulation period of an annuity?

pay-in period

An individual buys a flexible premium deferred life annuity with 20 year period certain. What would his beneficiary receive if he died 5 years after beginning the annuity phase?

payments for 15 years

What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death?

pure life

Which of the following best describes a pure life annuity settlement option?

pure life provides payment for as long as the annuitant is alive

A 403(b) plan, commonly referred to as a TSA, is available to be used by

teachers and not-for-profit organizations

The main difference between immediate and deferred annuities is

when the income payments begin