Chapter 12: Variable Annuities

Question #18 of 48Question ID: 606827 All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: A)defined contribution plans. B)IRAs. C)Keogh plans. D)variable annuities.

Contributions to a nonqualified variable annuity are not tax deductible. Contributions to an IRA may be tax deductible, depending on the individual's earnings and participation in a company-sponsored qualified retirement plan. Reference: 12.3.3 in the License Exam

Question #41 of 48Question ID: 606801 A customer has an investment objective of keeping pace with inflation while assuming moderate risk. Which of the following recommendations would best meet the customer profile? A)IPO. B)Universal variable life policy. C)Money market fund. D)Variable annuity.

Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. For this potential advantage, the investor, rather than the insurance company, assumes the investment risk. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. Reference: 12.1.2 in the License Exam

Question #24 of 48Question ID: 606806 All of the following statements regarding variable annuities are true EXCEPT: A)variable annuities may only be sold by registered representatives. B)variable annuities are classified as insurance products. C)insurance companies keep variable annuity funds in separate accounts from other insurance products. D)variable annuities offer the investor protection against capital loss.

A variable annuity is both an insurance and a securities product. An annuitant assumes the investment risk of a variable annuity and is not protected by the insurance company from capital losses. Reference: 12.1.4.1 in the License Exam

Question #32 of 48Question ID: 606815 If a 42-year-old customer has been depositing money in a variable annuity for 5 years, and he plans to stop investing but has no intention of withdrawing any funds for at least 20 years, he is holding: A)accumulation shares. B)mutual fund units. C)annuity units. D)accumulation units.

The customer, in the accumulation stage of the annuity, is holding accumulation units. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. Reference: 12.2.1 in the License Exam

Question #23 of 48Question ID: 901858 A customer, who has contributed to an IRA and to an employer matching 401(k) plan continuously for many years, wants to purchase an annuity contract to add additional monthly income once retired. Given that all of the current retirement investments are subject to market risk, the customer wants these new funds to have no market risk exposure. One of the following would achieve that objective but a suitability discussion regarding it's risk should also occur. Which is it? A)Fixed annuity contract with a discussion regarding purchasing power risk B)Fixed annuity contract with a discussion regarding timing risk C)Variable annuity contract with a discussion regarding interest rate risk D)Variable annuity contract with a discussion regarding legislative risk

A VA with its investments in the separate account subject to market risk would not align with the customer's objective. Therefore only a fixed annuity could be considered as suitable. However, a discussion should occur regarding the risks that are associated with a fixed annuity; purchasing power risk. The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. Reference: 12.1.1 in the License Exam

Question #8 of 48Question ID: 606820 A joint life with last survivor annuity: covers more than one person. continues payments as long as one annuitant is alive. continues payments only as long as all annuitants are still alive. guarantees payments for a certain period of time. A)II and IV. B)I and II. C)III and IV. D)I and III.

A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. Reference: 12.3.2.3 in the License Exam

Question #20 of 48Question ID: 606808 Which of the following are defined as securities? Fixed annuities. Variable Annuities. Options. CDs insured by the FDIC. A)I and IV. B)II and III. C)I and III. D)II and IV.

A security is any investment for profit with management performed by a third party. In addition, an element of risk must be present. Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. Reference: 12.1.2 in the License Exam

Question #36 of 48Question ID: 606805 If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? A)Purchasing power risk. B)Value of each annuity unit each month. C)Mortality risk. D)Investment risk.

An investor who purchases a fixed annuity contract assumes purchasing-power risk. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. Reference: 12.1.1 in the License Exam

Question #39 of 48Question ID: 721469 A customer is receiving annuitized payments from a variable annuity. The annuitized payments are viewed for tax purposes as A)exempt from taxes B)part earnings and part cost basis C)earnings only and taxable D)all return of cost basis and nontaxable

Annuitized payments from a variable annuity are viewed for tax purposes as part earnings and part cost basis. The earnings are taxable but the cost basis is returned tax free. Reference: 12.3.3 in the License Exam

Question #17 of 48Question ID: 606802 An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: A)the yield is always higher than mortgage yields. B)changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. C)the yield is always higher than bond yields. D)the safety of the principal invested.

Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. Reference: 12.1.2.1.1 in the License Exam

Question #33 of 48Question ID: 606832 A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client? A)Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. B)Capital gains taxation on the earnings withdrawn in excess of the owner's basis. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis.

Contributions to a nonqualified annuity are made with the owner's after-tax dollars. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. Since the client is older than 59½ at the time of distribution, the additional 10% penalty tax is not incurred. Reference: 12.3.3 in the License Exam

Question #47 of 48Question ID: 606813 With regard to a variable annuity, all of the following may vary EXCEPT: A)number of annuity units. B)value of annuity units. C)number of accumulation units. D)value of accumulation units.

During the accumulation phase, the number of accumulation units will increase as additional money is invested. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. Once annuitized, the number of annuity units does not vary. The value of accumulation and annuity units varies with the investment performance of the separate account. Reference: 12.2.1 in the License Exam

Question #12 of 48Question ID: 606814 Once a variable annuity has been annuitized: A)each annuity unit's value and the number of annuity units vary with time. B)each annuity unit's value varies with time, but the number of annuity units is fixed. C)the number of annuity units is fixed, and their value remains fixed. D)each annuity unit's value is fixed, but the number of annuity units varies with time.

During the payout period, payments are based on a fixed number of annuity units established when the contract was annuitized. The value of an annuity unit varies from month to month according to the performance of the separate account in comparison to the assumed interest rate. Reference: 12.2.1 in the License Exam

Question #4 of 48Question ID: 721467 When one is calculating cost basis for a nonqualified variable annuity they are using A)the dollars contributed minus any gains at the time of payout B)the after-tax dollars contributed C)the pre-tax dollars contributed D)the earnings in excess of dollars contributed

For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. Reference: 12.3.3 in the License Exam

Question #9 of 48Question ID: 606829 A joint-and-last-survivor annuity is a payout option where: A)payments continue until the death of the primary owner. B)two people are covered and payments continue until the second death. C)payments continue for a pre-determined period of time. D)payments continue until age 70-½.

In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. When the first party dies, the annuity payment is made to the survivor. When the second party dies, all payments cease. Reference: 12.3.2.3 in the License Exam

Question #25 of 48Question ID: 606819 Changes in payments on a variable annuity correspond most closely to fluctuations in the: A)value of underlying securities held in the separate account. B)cost of living. C)prime rate. D)Dow Jones Industrial Average.

Payments from a variable annuity depend on the securities' value in the separate account's underlying investment portfolio. Reference: 12.3.1 in the License Exam

Question #42 of 48Question ID: 606830 The holder of a variable annuity receives the largest monthly payments under which of the following payout options? A)Joint tenants annuity. B)Life annuity with period certain. C)Life annuity. D)Joint and last survivor annuity.

Life annuity has the largest payout because less risk is assumed by the insurance company; there is no beneficiary in the event the annuitant dies. Reference: 12.3.2.1 in the License Exam

Question #28 of 48Question ID: 606821 A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. How is the distribution taxed? The entire amount is taxed as ordinary income. The growth portion is taxed as ordinary income. The growth portion is taxed as a capital gain. The growth portion is subject to a 10% penalty. A)III and IV. B)I and IV. C)II and IV. D)II and III.

On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). In this case, the investor is taking a lump-sum distribution before reaching age 59-½ and must pay an additional 10% penalty on the taxable amount. Reference: 12.3.3 in the License Exam

Question #1 of 48Question ID: 606828 All of the following characteristics are shared by both a mutual fund and a variable annuity's separate account EXCEPT: A)the client assumes the investment risk. B)the investment portfolio is managed professionally. C)the payout plans provide the client income for life. D)the client may vote for the board of directors or board of managers.

Only variable annuities have payout plans that provide the client income for life. Reference: 12.3.2 in the License Exam

Question #45 of 48Question ID: 606795 An investor who has purchased a nonqualified variable annuity has the right to: vote on proposed changes in investment policy. approve changes in the plan portfolio. vote for the investment adviser. withdraw funds without any tax consequences. A)II and IV. B)II and III. C)I and IV. D)I and III.

Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. Reference: 12.1.4 in the License Exam

Question #13 of 48Question ID: 606822 A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. The value of the separate account is now $30,000. If the customer takes a withdrawal of $10,000, what are the tax consequences? A)There is no tax as the withdrawal is considered return of capital. B)Two-thirds of the withdrawal is taxable as ordinary income. C)The entire $10,000 is taxable as ordinary income. D)Any tax due is deferred.

The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). Therefore, ordinary income taxes will apply to the entire $10,000. In addition, if the customer is not at least 59-½, there will be a tax penalty of an additional 10%. Reference: 12.3.3 in the License Exam

Question #2 of 48Question ID: 606799 If the owner of a variable annuity dies during the accumulation period, any death benefit will: A)be returned to the separate account. B)be paid to the issuing company to complete the plan. C)be paid to any legal heirs as recognized by the annuitant's state of domicile. D)be paid to a designated beneficiary.

The accumulation period of a variable annuity may continue for many years. If the annuitant should die during that time, any death benefit would be paid to a beneficiary designated by the annuitant at the time the annuity was purchased. Reference: 12.1.2.1.2 in the License Exam

Question #3 of 48Question ID: 901859 A customer is choosing a payout option for a variable annuity. Maximizing monthly income for the rest of his life is the customer's key objective. This annuitant has no living relatives so beneficiaries are not a concern. Which of the following options available would best meet the needs of this annuitant? A)A straight life payout option B)A life with a 20-year period certain payout option C)A life with a 5-year period certain payout option D)Take random withdrawals from the contract

The largest monthly check an annuitant can receive for the rest of his life is generated by a straight life (life income or life only) payout option. Though there is no beneficiary designation during the annuitization, this is not an issue for this annuitant. Life with period certain will produce a smaller check for life because the insurance company will guarantee payments to a beneficiary for a certain period of time designated in the contract should the annuitant die within that period. But again, the need to designate beneficiaries is not an issue for this annuitant. Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies. Reference: 12.3.2.1 in the License Exam

Question #43 of 48Question ID: 606809 An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. Her intent was to use the funds for the down payment on a house after graduation. Her agent recommended she choose a variable annuity as a safe haven for the funds. This recommendation is: A)unsuitable because the return on something as conservative as a variable annuity tends to be low. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. C)suitable due to the death benefit features of a variable annuity. D)suitable due to the relative safety of the investment.

This customer has no spouse or dependents, which negates the value of the death benefit. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-½. Reference: 12.1.2.1.2 in the License Exam

Question #21 of 48Question ID: 606812 Universal variable life policies have investment risk that is assumed by the investor do not have a separate account can be sold by someone with only an insurance license are purchased primarily for their insurance features A)II and III B)I and II C)III and IV D)I and IV

Universal variable life policies are insurance company products that should be purchased primarily for the insurance features they offer rather than as an investment. Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both insurance and securities licenses. Reference: 12.1.4.1 in the License Exam

Question #48 of 48Question ID: 606835 Your customer in his early 30s has received a modest inheritance from a relative. Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? A)Corporate debt securities B)Tax-free municipal bonds C)Growth mutual funds D)A variable annuity

Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. None of the other investments listed here offer tax-deferred growth. Reference: 12.3.4 in the License Exam

Question #16 of 48Question ID: 606807 Variable annuity salespeople must register with all of the following EXCEPT: A)the state banking commission. B)FINRA. C)the SEC. D)the state insurance department.

Variable annuity salespeople must be registered with FINRA and the state insurance department. Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. Reference: 12.1.2 in the License Exam

Question #19 of 48Question ID: 606826 If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? She will receive the annuity's entire value in a lump-sum payment. She may choose to receive monthly payments for the rest of her life. The accumulation unit's value is used to calculate the total value of the account. The annuity unit's value represents a guaranteed return. A)II and IV. B)I and IV. C)II and III. D)I and III.

When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. This factor is used to establish the dollar amount of the first annuity payment. Future annuity payments will vary according to the separate account's performance. Reference: 12.3.1 in the License Exam

Question #11 of 48Question ID: 606816 An accumulation unit in a variable annuity contract is: A)an accounting measure used to determine the contract owner's interest in the separate account. B)fixed in value until the holder retires. C)none of these. D)an accounting measure used to determine payments to the owner of the variable annuity.

When money is deposited into the annuity, it is purchasing accumulation units. Reference: 12.2.1 in the License Exam

Question #22 of 48Question ID: 606803 Variable annuities must be registered with: the state banking commission. the state insurance commission. the SEC. FINRA. A)II and IV. B)I and III. C)III and IV. D)II and III.

A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. Therefore, variable annuities must be registered with the state insurance commission and the Securities and Exchange Commission. Reference: 12.1.2 in the License Exam

Question #44 of 48Question ID: 606797 A prospectus for a variable annuity contract: must provide full and fair disclosure. is required by the Securities Act of 1933. must be filed with FINRA. must precede every sales presentation. A)II and IV. B)I and III. C)III and IV. D)I and II.

A variable annuity is a security and must be registered with the SEC, not FINRA. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. Distribution can take place before or during any solicitation for sale. Reference: 12.1.2 in the License Exam

Question #15 of 48Question ID: 606804 All of the following statements concerning a variable annuity are correct EXCEPT: A)variable annuities will protect an investor against capital loss. B)a majority vote from the shareholders is required to change the investment objectives. C)the invested money will be professionally managed according to the issuers' investment objectives. D)separate account may consist of mutual funds.

As the name implies, the investment performance of a variable annuity's portfolio (separate account) can vary, and the investor bears the risk of any potential decline in its value. Many variable annuities invest the separate account in mutual funds. Reference: 12.1.4.1 in the License Exam

Question #38 of 48Question ID: 606798 A registered representative explaining variable annuities to a customer would be CORRECT in stating that: a variable annuity guarantees an earnings rate of return. a variable annuity does not guarantee an earnings rate of return. a variable annuity guarantees payments for life. a variable annuity does not guarantee payments for life. A)II and IV. B)I and III. C)I and IV. D)II and III.

A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. However, it does guarantee payments for life (mortality). Reference: 12.1.2 in the License Exam

Question #35 of 48Question ID: 606810 A variable annuity's separate account is: used for the investment of funds paid by contract holders. used to escrow late or otherwise delinquent premium payments. required to be located off of the company's premises. regulated under both securities and insurance laws. A)I and IV. B)II and III. C)II and IV. D)I and III.

The separate account is used for both variable life insurance and variable annuity investments. The nature of the securities invested in-bonds and growth stocks-makes it necessary that sales representatives and their principals be licensed in securities as well as insurance. Reference: 12.1.2.1.1 in the License Exam

Question #27 of 48Question ID: 606818 Your 65-year-old client owns a nonqualified variable annuity. He originally invested $29,000 4 years ago; it now has a value of $39,000. If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? A)2800. B)4200. C)3800. D)0.

This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). The tax on this is $2,800 ($10,000 x 28%). Because the client is older than age 59-½, he does not pay 10% premature distribution penalty tax. Reference: 12.3.3 in the License Exam

Question #7 of 48Question ID: 606824 John is the annuitant in a variable plan, and Sue is the beneficiary. Upon John's death during the accumulation period, Sue takes a lump-sum payment. What is her total tax liability? A)The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. B)The entire amount is taxed as ordinary income, because it is not life insurance. C)None, because it is the proceeds from a life insurance company. D)The ordinary income on the proceeds over the cost basis plus 10% of the net gain (if any) if Sue is younger than 59-½ years old.

Annuity death benefits are generally paid in a lump sum. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. Reference: 12.3.3 in the License Exam

Question #30 of 48Question ID: 606833 Your customer, still working, informs you that she will be funding a variable annuity you have recommended from 2 sources: a refinancing of her primary home where she will be able to draw out equity that has built up since it was purchased 15 years ago, and cashing out another variable annuity that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. Based only on these facts, the variable annuity recommendation is A)not suitable B)suitable regardless of funding sources C)not suitable because a lifetime income rider is only for someone who is already retired D)suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract

Based on the information given in the question, the VA recommendation would not be suitable. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. Cashing out life insurance policies or VAs where steep surrender charges are likely to exist, particularly in the earlier years of those contracts, is also considered abusive. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. Reference: 12.3.2.1 in the License Exam

Question #40 of 48Question ID: 606800 For a retired person, which of the following investments would provide the greatest protection against inflation? A)Fixed annuities. B)Variable annuities. C)Corporate bonds. D)Municipal bonds.

Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. Reference: 12.1.2 in the License Exam

Question #31 of 48Question ID: 606836 A registered representative recommends a variable annuity with an income rider to a client. The client's investment objectives, tax bracket, investment experience and risk tolerance all align well with a VA recommendation. The client agrees to purchase the contract and informs the RR that he will be cashing out a VA he purchased 2 years ago to fund the new contract and will forward the check as soon as he receives it. Based on this information the RR should: A)contact the issuer of the clients existing VA contract to facilitate the clients surrender of the contract. B)reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. D)suggest to the client that perhaps a loan or refinancing his vacation home might be a better way to fund the contract purchase.

Funding a VA contract by cashing out either life insurance policies or existing VA contracts, especially those held for a short period of time is not suitable. These contracts come with high surrender charges. Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. Reference: 12.3.4 in the License Exam

Question #29 of 48Question ID: 606831 Your client owns a variable annuity contract with an AIR of 4%. In March, the actual net return to the separate account was 8%. If this client is in the payout phase, how would his April payment compare to his March payment? A)It will stay the same. B)It will be lower. C)It will be higher. D)It cannot be determined until the April return is calculated.

If the separate account of a variable annuity with an AIR of 4% had actual net earnings of 8% in March, the April payment will be higher than the March payment. Reference: 12.3.1 in the License Exam

Question #26 of 48Question ID: 606811 A separate account will invest in a number of different securities. The separate account is NOT likely to invest in: A)equity funds. B)corporate stock. C)municipal bonds. D)money market funds.

The earnings on dollars invested into a variable annuity accumulate tax deferred, which is why variable annuities are popular products for retirement accumulation. As with all tax-deferred accounts, municipal bonds are not appropriate investments because interest earned on municipals is already tax exempt at the federal level. Reference: 12.1.4.2 in the License Exam

Question #14 of 48Question ID: 606823 A customer has a nonqualified variable annuity. Once the contract is annuitized, monthly payments to the customer are: A)100% tax free. B)100% taxable. C)100% tax deferred. D)partially a tax-free return of capital and partially taxable.

The investor has already paid tax on the contributions but the earnings have grown tax-deferred. When the annuitization option is selected, each payment represents both capital and earnings. The money paid in will be returned tax free, but the earnings portion will be taxed as ordinary income. Reference: 12.3.3 in the License Exam

Question #10 of 48Question ID: 606837 A registered representative's (RR) customer is speaking of a variable life insurance contract he owns. He makes several statements regarding the contract. Which of the following is NOT an accurate statement concerning a variable life insurance contract? A)There is no guarantee regarding the investment results of the separate account. B)The portion of the premium invested in the insurance company's general account is used to provide for the minimum guaranteed amount of the death benefit. C)The death benefit cannot ever be more than the guaranteed benefit. D)The policy provides a minimum guaranteed death benefit.

The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. The remainder of the premium is invested in the separate account. While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount. Reference: 12.4 in the License Exam

Question #5 of 48Question ID: 901860 A married couple intending to work another 2-4 years wants to fund a variable annuity to add monthly income during their retirement years. Having utilized all other available retirement investment vehicles, they want to invest $150,000 in savings toward the retirement objective. They note that these funds need to be paid out for as long as they live. Which of the following would be the most suitable and cost effective? A)A single joint with last survivor contract B)Two separate life income contracts, one for each spouse C)Two separate joint with last survivor contracts D)A single life with period certain contract on one of the spouses with the other as named beneficiary

The most suitable option and one considered effective for married couples is a single joint and last survivor contract. These contracts cover both lives and will continue to make payments until the last spouse dies. Dividing the funds available so as to fund 2 separate contracts, whether they be joint with last survivor or life income, would not be cost efficient for spouses. A life with period certain contract guarantees payments for a specified number of years to a named beneficiary if the annuitant dies during that time. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. This would not align with the couple's criteria for coverage as long as they both live. Reference: 12.3.2.3 in the License Exam

Question #37 of 48Question ID: 606817 Which of the following statements regarding variable annuities are TRUE? The number of accumulation units is always fixed throughout the accumulation period. The number of accumulation units can rise during the accumulation period. The number of annuity units is fixed at the time of annuitization. The number of annuity units rises once annuitization begins. A)II and III. B)I and III. C)II and IV. D)I and IV.

The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. When a variable annuity contract is annuitized, the number of annuity units is fixed. Reference: 12.2.1 in the License Exam

Question #6 of 48Question ID: 606825 In a variable life annuity with 10-year period certain, a contract holder receives: A)10 years of variable payments. B)fixed payments for 10 years, followed by variable payments for life. C)variable payments for 10 years, followed by fixed payments for life. D)a minimum of 10 years of variable payments, followed by additional variable payments for life.

The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. An example would be if a life annuity with 10-year period certain contract holder died after 5 years, payments would continue for 5 more years to the beneficiary and then stop. Reference: 12.3.2.2 in the License Exam

Question #46 of 48Question ID: 606796 All of the following statements about variable annuities are true EXCEPT: A)the number of annuity units becomes fixed when the contract is annuitized. B)a minimum rate of return is guaranteed. C)such an annuity is designed to combat inflation risk. D)the rate of return is determined by the underlying portfolio's value.

The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. Variable annuities are designed to combat inflation risk. The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. Reference: 12.1.2.1.1. in the License Exam

Question #34 of 48Question ID: 606834 Your customer is interested in a variable annuity but is unclear on some of the details regarding different specifications and riders that can be attached to the contract. He makes the following four statements, all of which are true EXCEPT A)a lifetime withdrawal benefit (LWB) or lifetime income benefit is generally in the form of a rider attached to the contract which will come at a cost to the annuitant B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero C)with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually D)with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed

With guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is not guaranteed because payments stop when the annuitant has received an amount equal to the principal account value or the contract term ends. Each of the remaining statements are true. Reference: 12.3.2.4 in the License Exam