Chapter 7 - Annuities

Which of these statements concerning an Individual Straight Life annuity is accurate? Life expectancy of the annuitant is not a factor The payments are received tax-free Only available to employees of nonprofit charitable, educational, and religious organizations Payments are made to an annuitant for life

Payments are made to an annuitant for life

Equity indexed annuities are invested in which of the following

S&P 500

S recently received a $500,000 lump sum retirement buyout from her employer. She would like to buy an annuity that will immediately furnish her with a guaranteed income for life. What type of annuity is best suited for her situation?

Single Premium

Which of the following annuities pays benefits based on units rather than specific dollar amounts?

A Variable annuity

Which of the following is NOT included in an annuity contract? Nonforfeiture benefit Free-Look period Beneficiary AD&D rider

AD&D rider

P is a forty year old woman and would like to purchase an annuity that will provide a lifetime income stream beginning at age sixty. Which of the following did she NOT buy? A straight life deffered annuity A straight life annuity An immediate annuity A deferred annuity

An immediate annuity

An annuity promises that, if the annuitant dies before receiving payments equal to the correct value, the payments will be continued to a beneficiary until an amount equal to the contract value has been paid. This type of annuity is called

An installment Refund annuity

The type of annuity that can be purchased with one monetary deposit is called a(n)

Immediate annuity

W is a 39-year old female who just purchased an annuity to provide income for life starting at age 60. All of these would be acceptable annuity choices EXCEPT a(n) Flexible Premium Deferred annuity Variable annuity Immediate annuity Straight Life annuity

Immediate annuity

T, age 70, withdraws cash from a profit-sharing plan and purchases a Straight Life Annuity. What will this transaction provide?

Income that cannot be outlived by the owner

How does an indexed annuity differ from a fixed annuity?

Indexed annuity owners receive credited interest tied to the fluctuations of the linked index

Variable annuities may invest premiums in each of the following EXCEPT Common Stock Money Market securities Insurer's corporate business account Junk bonds

Insurer's corporate business account

T has an annuity that guarantees an income payment for the rest of his life. The contract also guarantees that if T dies before receiving payments for 20 years, the remaining payments will be paid to his son for the balance of the 20 years. What type of annuity is this?

Life Annuity with Period Certain

Which of these is an element of a Single Premium annuity?

Lump-sum payment

An immediate annuity consists of a

single premium

An individual who purchases a Life annuity is given protection against

the risk of living longer than expected

Which type of contract liquidates an estate through recurrent payments?

Annuity

What is considered to be a characteristic of an immediate annuity?

Benefit payments start within one payment period of purchase

P, age 50, purchased an annuity that P will fund with $500/ month for 15 years. The annuity will then pay P retirement payments after the 15 years. Which type of annuity did P purchase?

Deferred

G purchased a $50,000 single premium, Straight Life Annuity 2 years ago. G has been receiving monthly payments from the annuity. When G dies, the insurer

Does not have to make any further payments

N, age 50, recently bought an annuity that will pay a guaranteed $2,000/month at age 70 for life. What type of annuity did N purchase?

Fixed Deferred

N purchases an annuity by making payments in an amount no less than $100 quarterly. This describes which of the following annuities?

Flexible Installment Deferred

The annuity that represents the largest possible monthly payment to an individual annuitant is a(n)

Straight Life annuity

If an annuity is terminated prior to beginning of the income payment period, the contract owner receives

The contract surrender value at that time

Which of the following statements regarding a Tax Sheltered Annuity (TSA) is INCORRECT? The income from the TSA is received income tax-free The amount contributed is deductible from taxable income The interest earnings are tax deferred A tax-sheltered annuity is available to employees of non-profit organizations

The income from the TSA is received income tax-free

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

Underlying equity investments

What type of annuity has a cash value that is based upon the performance of it's underlying investment funds?

Variable