LIfe - Annuities - Quiz

What license or licenses are required to sell variable annuities? A) No license is required B) Both a life insurance license and a securities license C) Only a life insurance license D) Only a securities license

B) Both a life insurance license and a securities license Correct! Agents are required to have both a life insurance license and a securities license to sell variable annuities.

Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity? A) Statewide predetermined annual interest rate B) Insurer's guaranteed minimum rate of interest C) Investment performance of the company D) Investment performance of the insured

B) Insurer's guaranteed 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.

Annuities can be used to fund which of the following? A) Estate creation B) Retirement plans C) Variable life insurance D) Group life insurance

B) Retirement plans Correct! Since annuities are a popular means to provide retirement income, they are often used to fund qualified retirement plans.

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? A) The contract can be issued without an annuitant. B) The annuitant must be a natural person. C) A corporation can be an annuitant as long as it is also the owner. D) A corporation can be an annuitant as long as the beneficiary is a natural person.

B) The annuitant must be a natural person. Correct! Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.

Which of the following will NOT be an appropriate use of a deferred annuity? A) Accumulating funds in an IRA B) Funding a child's college education C) Creating an estate D) Accumulating retirement funds

C) Creating an estate Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children's college education. Unlike life insurance, annuities do not create an estate, but liquidate it.

Under a pure life annuity, an income is payable by the company A) For a guaranteed period of time, whether or not the annuitant survives to the end of that period. B) For as long as either the annuitant or a named beneficiary is alive. C) Only for the life of the annuitant. D) Until the principal and interest are exhausted.

C) Only for the life of the annuitant. Correct! With pure life annuity, income payments cease at the annuitant's death and there is no refund or payments to survivors. This type of annuity is also referred to as Life Only or Straight Life.

Which of the following is a feature of a variable annuity? A) Securities license is not required. B) Benefit payment amounts are not guaranteed. C) Payments into the annuity are kept in the company's general account. D) Interest rate is guaranteed.

B) Benefit payment amounts are not guaranteed. Correct! Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant's payments into the annuity are invested in the insurer's separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent's license.

Which of the following is a true comparison between annuities and life insurance? A) Both annuities and life insurance use mortality tables. B) Annuities serve the same function as life insurance. C) Both provide a lifetime income. D) Neither annuities nor life insurance subject to income taxes.

A) Both annuities and life insurance use mortality tables. Correct! Annuities are not life insurance; they do not pay a face amount upon the death of the annuitant. In most cases, the payment phase stops upon the death of the annuitant. Annuities use mortality tables, which reflect a longer life expectancy than the tables used in life insurance.

Which of the following is another term for the accumulation period of an annuity? A) Pay-in period B) Premium period C) Liquidation period D) Annuity period

A) Pay-in period Correct! The accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity.

All of the following are true of an annuity owner EXCEPT A) The owner must be the party to receive benefits. B) The owner pays the premiums on the annuity. C) The owner has the right to name the beneficiary. D) The owner is the party who may surrender the annuity.

A) The owner must be the party to receive benefits. Correct! The "owner" is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant (if different from the owner) or the beneficiary.

Fixed annuities provide all of the following EXCEPT A) Hedge against inflation. B) Equal monthly payments for life. C) Minimum guaranteed rate of interest. D) Future income payments.

A) Hedge against inflation. Fixed annuities invest premium payments into a general account - a safe and conservative investment portfolio. They also provide a specified dollar amount for each annuity payment regardless of the purchasing power of the money. Variable annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, and therefore providing protection against inflation.

All of the following statements about equity index annuities are correct EXCEPT A) The annuitant receives a fixed amount of return. B) They have a guaranteed minimum interest rate. C) The interest rate is tied to an index such as the Standard & Poor's 500. D) They invest on a more aggressive basis aiming for higher returns.

A) The annuitant receives a fixed amount of return. Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.

Which of the following provisions in annuity contracts allow the owner to surrender the annuity if interest rates drop to a specified level? A) Annuitization B) Bail-out C) Surrender D) Nonforfeiture

B) Bail-out Correct! Some annuity contracts contain a bail-out provision. This provision allows the owner to surrender the annuity without charge if interest rates drop a specified amount within a certain timeframe.

Which of the following is TRUE regarding variable annuities? A) The company guarantees a minimum interest rate. B) A person selling variable annuities is required to have only a life agent's license. C) The annuitant assumes the risks on investment. D) The funds are invested in the company's general account.

C) The annuitant assumes the risks on investment. Correct! The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from "money market funds" to "growth stock funds" to "precious metal funds". Therefore, the annuitant assumes the risk of the investment.