Chapter 7 - Annuities

Variable annuities have: Select one: a. Variable interest rates and benefits b. Fixed interest rates and benefits c. Fixed premiums d. Level benefits

a. Variable interest rates and benefits

The phase during which premiums are paid into the annuity is the: Select one: a. Annuity phase b. Accumulation phase c. Annuitization phase d. Payout period phase

b. Accumulation phase

Premiums for a joint and survivor life annuity are based on the annuitants': Select one: a. Ages only b. Sex only c. Ages and sex d. Ages, sex and geographic location

c. Ages and sex

Many factors are taken into consideration when determining the premiums for an annuity. These factors include all but: Select one: a. Annuitant's age b. Annuitant's sex c. Annuitant's ethnicity d. Annuitant's payout amount

c. Annuitant's ethnicity

Which of the following is a personal use of annuities? Select one: a. Life income b. IRAs c. Tax-deferred growth/cash accumulation d. All of the above

d. All of the above

Which of the following statements regarding the amount of each annuity payment is true? Select one: a. The younger the annuitant is, the higher the annuity payment. b. Fixed annuities have variable annuity payments. c. Variable annuities have fixed annuity payments. d. Women typically receive lower annuity payments.

d. Women typically receive lower annuity payments.

This annuity does not guarantee a life income, but pays a specific amount to the annuitant periodically: Select one: a. Fixed period installment annuity b. Fixed amount installment annuity c. Temporary annuity certain annuity d. Market value adjusted annuity

b. Fixed amount installment annuity

Collin buys a fixed deferred annuity. Upon annuitization, he chooses the life annuity with period certain payout option. Collin will receive $3,000 each month with a 15-year certain period. If Collin dies after seven years, how much will his beneficiary receive? Select one: a. $0 b. $252,000 c. $288,000 d. $540,000

c. $288,000

All of the following are true of the straight life income option for annuities, EXCEPT: Select one: a. The straight life income option provides the largest periodic benefit. b. Payments stop upon the annuitant's death. c. A beneficiary will receive any balance of the annuity upon the annuitant's death. d. Payments consist of principal and interest.

c. A beneficiary will receive any balance of the annuity upon the annuitant's death.

Annette and John are married and have an annuity in which payments will reduce to 2/3 of the original amount upon the death of the first annuitant. What annuity do they have? Select one: a. Joint life annuity b. Joint and 2/3 life annuity c. Joint and 1/2 life annuity d. Joint and survivor annuity

b. Joint and 2/3 life annuity

The value of each accumulation unit varies: Select one: a. Daily b. Monthly c. Semiannually d. Annually

a. Daily

Annuities have all of the following uses, EXCEPT: Select one: a. To provide life income b. To provide retirement income c. For education funds d. To provide tax-free income

d. To provide tax-free income

Immediate annuities must be purchased with: Select one: a. A single premium b. Level premiums c. Flexible premiums d. A single premium only after the annuitant reaches the age of 59

a. A single premium

Annuities are defined as: Select one: a. The creation of an estate b. The systematic liquidation of an estate c. Income replacement d. A plan to pay medical expenses

b. The systematic liquidation of an estate

Which of the following is not true about the impact of the annuitant's sex on the premium payments? Select one: a. Men live more dangerously so their premiums are higher. b. Women live longer than men, so their premiums are higher. c. Both of the above. d. Neither of the above.

a. Men live more dangerously so their premiums are higher

Adrian bought an annuity for herself. After a few years, she begins to receive annuity payments. When she dies, her best friend will receive the balance of principal. Which of the following annuities best describes the annuity Adrian bought? Select one: a. Refund life b. Straight life c. Joint and survivor life d. All of the above

a. Refund life The refund life annuity pays for the entire life of the annuitant. If the annuitant dies before the premiums in the annuity have been paid out, then a beneficiary will receive the balance.

In which of the following types of annuities does the payment period begin immediately after the annuity is purchased? Select one: a. SPIA b. SPDA c. Deferred d. None of the above

a. SPIA

Nick is single and retired at the age of 55. He does not have any dependent family members. Nick wants to purchase an annuity that will give him the largest monthly income. What annuity would you recommend to him? Select one: a. Straight life annuity b. Life annuity with period certain c. Refund life annuity d. Joint and survivor life annuity

a. Straight life annuity

What portion of an annuity's death benefit is taxed? Select one: a. The portion that exceeds the cost-basis b. The premiums plus interest c. The premiums d. Death benefits are never taxed.

a. The portion that exceeds the cost-basis

Which of the following is characteristic of fixed annuities? Select one: a. Variable interest rates during the pay-in period b. Fixed interest rates during the payout period c. Annuity payment amounts are flexible. d. Premiums are invested in the insurer's separate account.

b. Fixed interest rates during the payout period

All of the following are factors that determine the annuity payout amount, EXCEPT: Select one: a. Annuity cash accumulation b. Loading c. Annuitant's marital status d. Annuitant's age

c. Annuitant's marital status

All of the following are true of the life with period certain annuity payout option, EXCEPT: Select one: a. The annuitant is provided with guaranteed income for life. b. Payments are guaranteed for a minimum number of years. c. Any balance in the annuity fund after the period certain ends is refunded to a beneficiary. d. The life with period certain option does not guarantee the full value of the annuity will be paid out.

c. Any balance in the annuity fund after the period certain ends is refunded to a beneficiary.

Which annuity provides a guaranteed minimum rate of return? Select one: a. Single premium immediate annuity b. Single premium deferred annuity c. Fixed annuity d. Variable annuity

c. Fixed annuity

All of the following statements are true regarding the accumulation period in an annuity, EXCEPT: Select one: a. The accumulation period is the pay-in period. b. During the accumulation period, the contract owner makes premium payments into the annuity. c. During the accumulation period, the principal earns compound interest. d. Premiums are paid with pre-tax dollars.

d. Premiums are paid with pre-tax dollars.

Alex purchases a single premium immediate annuity on March 1. If he elects monthly annuity payments, when will he receive his first annuity payment? Select one: a. March 15th b. March 31st c. April 1st d. May 1st

c. April 1st

Jodeen purchases an annuity with a $40,000 lump-sum payment on July 15. She begins to receive monthly annuity payments on August 15. What type of annuity did she buy? Select one: a. SPIA b. SPDA c. Deferred d. None of the above

a. SPIA

Lucas purchased an annuity for himself. He begins to receive annuity payments. If the amount of premium in the annuity has not been paid out upon his death, then his grandson will receive the balance. What type of annuity does Lucas have? Select one: a. Straight life b. Period Certain c. Cash Refund option d. Joint and survivor life

c. Cash Refund option

hat 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? Select one: a. Nonforfeiture options b. Surrender charges c. Death benefits d. Annuitization

c. Death benefits

Marty purchases an annuity for his younger brother, Jacob. If Jacob is the person who will be receiving annuity payments, which of the following statements is true? Select one: a. Marty is the contract owner and annuitant. b. Jacob is the contract owner and annuitant. c. Marty is the annuitant and Jacob is the contract owner. d. Marty is the contract owner and Jacob is the annuitant.

d. Marty is the contract owner and Jacob is the annuitant.

How do annuities provide guaranteed income for life? Select one: a. By systematically liquidating an estate b. By paying monthly disability income benefits c. By paying a lump-sum death benefit d. None of the above

a. By systematically liquidating an estate

Which of the following annuity payout options pays benefits to two annuitants, where payments will be made to the surviving annuitant for life upon the first annuitant's death? Select one: a. Joint and survivor b. Period certain c. Straight life d. None of the above

a. Joint and survivor

What accounting unit is used during the annuity phase of a variable annuity? Select one: a. Accumulation unit b. Annuity unit c. Premium unit d. Contract unit

b. Annuity unit During the annuity phase, annuity units are used in lieu of accumulation units to determine the amount of each annuity payment. The number of annuity units is fixed and is based on the contract's dollar value investment in the separate account, and how much the first annuity payment will be.

What are the two types of refund life annuity payout options? Select one: a. Single life and multiple lives b. Cash refund and installment refund c. Life annuity with period certain and straight life d. Fixed period installment and fixed amount installment

b. Cash refund and installment refund

All of the following are true regarding deferred annuities, EXCEPT: Select one: a. Deferred annuities have a payout period that begins after one year, or after many years from the annuity's purchase date. b. Deferred annuities must be purchased with multiple premium payments. c. During the accumulation period, the principal earns compound interest on a tax deferred basis. d. Deferred annuities are frequently used to build retirement funds.

b. Deferred annuities must be purchased with multiple premium payments.

What is a disadvantage of fixed annuities? Select one: a. Knowing the exact amount of each annuity payment b. Potential for higher interest earnings c. Earning potential may not be enough to offset the effects of inflation d. Investment in the insurer's separate account, which has the potential for higher yields

c. Earning potential may not be enough to offset the effects of inflation

ABC Insurer sells a $500,000 single premium immediate annuity to four different people. Who receives the largest check? Select one: a. 18-year old female b. 25-year old male c. 60-year old female d. 60-year old male

d. 60-year old male

Of the following, who will receive the largest monthly annuity benefit from a $100,000 single premium immediate annuity? Select one: a. Woman, age 40 b. Man, age 40 c. Woman, age 70 d. Man, age 70

d. Man, age 70

The surrender nonforfeiture option for annuities is: Select one: a. Only available for immediate annuities b. Not available for deferred annuities c. 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 d. Typically refunded to the contract owner in periodic monthly payments

c. 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

All of the following statements are correct, EXCEPT: Select one: a. With the cash refund option, the beneficiary receives the balance of premiums plus interest minus benefits paid in a lump-sum. b. All annuities have an annuity period, but may not have an accumulation period. c. The fixed period installment annuity makes periodic payments for a set period of time. d. All annuities are qualified.

d. All annuities are qualified.

Nonforfeiture options are available to contract owners of all of the following, EXCEPT: Select one: a. SPDA b. SPIA c. FPDA d. Deferred annuity

b. SPIA

In addition to a life insurance producer license, producers selling variable products must have a(n): Select one: a. Annuity license b. Series 6 or 7 license c. Accident and health license d. Property and casualty license

b. Series 6 or 7 license

Which of the following in not an annuities classification that fits into the structure and design of an annuity? Select one: a. Funding method b. Date income payments begin c. Law of large numbers d. Investment configuration

c. Law of large numbers

Which of the following is the best definition of an annuity? Select one: a. Death protection b. Cash supplement c. Systematic liquidation of an estate d. Savings account

c. Systematic liquidation of an estate

All of the following statements regarding annuities are true, EXCEPT: Select one: a. The more guarantees an annuity has, the lower the annuity payment. b. Life annuities provide income that an annuitant cannot outlive. c. Upon annuitization, cash value taken in one lump-sum is not taxable. d. The annuity certain does not guarantee life income.

c. Upon annuitization, cash value taken in one lump-sum is not taxable.

Jacob begins to receive periodic annuity payments. Upon Jacob's death all annuity payments cease and the balance in the annuity is retained by the insurer. What annuity does Jacob have? Select one: a. Refund life annuity b. Life annuity with period certain c. Installment refund life annuity d. Straight life

d. Straight life

This annuity is regulated as a securities product and agents selling this product must have a securities license: Select one: a. SPDA b. Equity indexed annuity c. Fixed annuity d. Variable annuity

d. Variable annuity

Which of the following is not a payout option that pays the annuitant for life? Select one: a. Period certain option b. Cash refund c. Installment refund d. Life annuity with period certain

a. Period certain option

Annuities protect against: Select one: a. The risk of prolonged life b. The risk of premature death c. The risk of accident or sickness d. The risk of disability

a. The risk of prolonged life

The amount of each monthly payment for a straight life annuity is based on the annuitant's: Select one: a. Age b. Sex c. Age and sex d. Age, sex, and amount of money in the annuity upon annuitization

d. Age, sex, and amount of money in the annuity upon annuitization

Of the following, who will receive the largest monthly annuity benefit from a $100,000 single premium immediate annuity with 5-year period certain: Jane, age 40; Paul, age 40; or William, age 70? Select one: a. Paul b. Jane c. William d. Each receives the same amount

d. Each receives the same amount With a period certain annuity payout option, the monthly periodic benefit is based on the amount of the annuity upon annuitization and the length of the period certain. The annuitant's age and sex are not factors.

All of the following are characteristics of tax-sheltered annuities, EXCEPT: Select one: a. Tax-sheltered annuities are available to tax-exempt nonprofit organizations and public schools. b. The employer establishes the tax-sheltered annuity and contributions made by employees are non-taxable. c. The purpose of tax-sheltered annuities is to save money for retirement income. d. Money invested in a tax-sheltered annuity is taxable upon deposit.

d. Money invested in a tax-sheltered annuity is taxable upon deposit. Money invested in tax-sheltered annuities is taxable upon distribution, not deposit.

Which of the following statements is true regarding the taxation of premiums and interest in annuities? Select one: a. Principal (premiums) is paid with pre-tax dollars; interest is taxable income during the payout phase. b. Principal (premiums) is paid with after-tax dollars; interest is not taxable income during the payout phase. c. Principal (premiums) is paid with pre-tax dollars; interest is not taxable income during the payout phase. d. Principal (premiums) is paid with after-tax dollars; interest is taxable income during the payout phase.

d. Principal (premiums) is paid with after-tax dollars; interest is taxable income during the payout phase.

The person who owns the annuity and pays the premiums is the: Select one: a. Contract owner b. Annuitant c. Beneficiary d. Annuity

a. Contract owner

What type of premium is used to purchase an immediate annuity? Select one: a. Single b. Flexible c. Level d. Increasing

a. Single

Which of the following is not a use of annuities? Select one: a. Tax-free income b. Education funds c. Life income d. All of the above

a. Tax-free income

For which of the following annuities must an agent have a securities license in order to sell? Select one: a. Variable annuity b. Equity indexed annuity c. SPDA d. Fixed annuity

a. Variable annuity

The person who receives annuity payments is the: Select one: a. Insurer b. Contract owner c. Beneficiary d. Annuitant

d. Annuitant

Which of the following fixed annuities has a minimum rate of return and a current rate of return that is connected to the S&P 500? Select one: a. Fixed annuity b. Market value adjusted annuity c. FPDA d. Equity indexed annuity

d. Equity indexed annuity

The two broad categories of annuities are ________ and ________ based on when the annuity phase begins. Select one: a. SPDA; SPIA b. SPIA; immediate c. Deferred; SPDA d. Immediate; deferred

d. Immediate; deferred

Which annuity payout option has a distinct beginning and ending? Select one: a. Cash b. Lump-sum c. Life annuity d. Period certain

d. Period certain