Life Insurance - Ch. 5

Annuities can be used to fund which of the following? - estate creation - retirement plans - variable life insurance - group life insurance

retirement plans

After applying for an annuity, a 60 year old insured receives the completed contract on April 7. If he decides he doesn't want the contract, when must he return it? - May 7 - April 22 - April 30 - April 17

April 17 - If the contract holder is younger than 65, a 10 day free look period applies to annuities

IRS

Internal Revenue Service: Government agency responsible for collecting taxes and enforcing the Internal Revenue Code

If an annuity was defaulted due to nonpayment of premium, what must happen before the policy can be reinstated? - all overdue payments and any debt due to the insurer must be paid - the insured must submit an additional application - premiums must be paid for 6 months in advance - the insured must submit proof of financial responsibility

all overdue payments and any debt due the insurer must pay

When an annuity is written, whose life expectancy is taken into consideration? - beneficiary - life expectancy is not a factor when writing an annuity - owner - annuitant

annuitant

In an annuity, the accumulated money is converted into a stream of income during which time period? - conversion period - annuitization period - payment period - amortization period

annuitization period

Life contingency

dependent on whether or not the insured is alive

Which of the following is NOT true regarding the accumulation period of an annuity? - it would not occur in a deferred annuity - it is the period during which the annuity payments earn interest - it is the period over which the owner makes payments into an annuity - also known as the pay-in period

it would not occur in a deferred annuity - the payments earn interest and grow tax deferred

Deferred

withheld or postponed until a specified time or event in the future

Suitability

a requirement to determine if an insurance product or an investment is appropriate for a particular customer

Liquidation of an estate

converting a person's net worth into a cash flow

Qualified plan

a retirement plan that meets the IRS guidelines for receiving favorable tax treatment

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? - full premium refund without any charges - guaranteed surrender value - no payments - annuity dividends

guaranteed surrender value

Which of the following best describes a bail-out provision? - it waives the surrender charge for the annuitants confined to a long-term care facility - it allows the owner to receive a higher interest rate at a certain timeframe - it decreases the annuity surrender value - it allows the owner to surrender the annuity without a charge

it allows the owner to surrender the annuity without a charge

All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT - it will pay the benefit only for a designated period of time - the payments are not guaranteed for life - the insurer determines the amount for each payment - it is a life contingency option

it is a life contingency option - annuitant selects the time period for the benefits, determines how much each payment will be, pays or a specific time only, and there are no life contingencies

A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month as long as she lives. When the wife dies, the payments stop. What settlement option did they select? - straight life - joint and survivor - joint annuity - cash refund annuity

joint and survivor - the surviving beneficiary receives 1/2 or 2/3 the amount received when both beneficiaries were alive

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? - life with period certain - joint limited annuity - joint life - joint and survivor

joint life - this pays benefits to two or more annuitants, but stops upon the death of the first

Which of the following is NOT true regarding the annuitant? - the annuitant must be a natural person - the annuitant cannot be the same person as the annuity owner - the annuitant's life expectancy is taken into consideration for the annuity - the annuitant receives the annuity benefits

the annuitant cannot be the same person as the annuity owner

In a fixed annuity, which of the following is true regarding the guaranteed interest rate on the investment? - the annuitant will always receive the current interest rate - the annuitant will receive the lower of either the guaranteed minimum rate or current rate - the annuitant will only receive the guaranteed minimum specified in the contract - the annuitant will receive the higher of either the guaranteed minimum rate or current rate

the annuitant will receive the higher of either the guaranteed minimum rate or current rate - whichever is higher (minimum or current rate)

Which of the following will NOT be an appropriate use of a deferred annuity? - accumulating funds in an IRA - finding a child's college education - creating an estate - accumulating retirement funds

creating an estate - deferred annuities grow tax deferred - annuities do not create an estate, but liquidate it

If the annuitant dies during the accumulation period, who will receive the annuity benefits? - the annuitants estate - the beneficiary - the annuity owner - the insurance company

the beneficiary - they will receive either the amount paid into the plan or the cash value, whichever is greater

If a contract provides a set amount of income for two or more persons with the income stopping upon the first death of the insured, it is called a - deferred annuity - pure annuity - joint life annuity - joint and survivor annuity

joint life annuity

Which of the following provisions in annuity contracts allow the owner to surrender the annuity if interest rates drop to a specified level? - annuitization - bail out - surrender - nonforfeiture

bail out - 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 requires a securities license? - fixed annuity - equity indexed annuity - deferred annuity - variable annuity

variable annuity - regulated by the SEC (securities exchange commission), so the person must hold a securities license on top of life insurance license

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? - the premium value will be paid to the annuitant's estate - all benefits will be forfeited - the cash value will be paid to the state government - the cash value will be paid to the annuitant's estate

the cash value will be paid to the annuitant's estate - b/c the annuitant died during the accumulation period (paid in cash or amount of premiums paid whichever is higher)

Which of the following is true regarding a waiver of a surrender charge on an annuity contract? - the surrender charge waiver only applies to immediate annuity - the charge may be waived if the annuitant is confined to a long-term care facility for at least 30 days - the charge can only be waived if the annuitant needs the funds for medical expenses - the surrender charge will be applied to all premature surrenders

the charge may be waived if the annuitant is confined to a long-term care facility for at least 30 days

When a fixed annuity owner pays a monthly premium to the insurance company, where is the money placed? - the insurance company's general account - forwarded to an investor - each contract's separate account - the annuity owner's account

the insurance company's general account

Which of the following is true regarding a market value adjusted annuity? - the insurer bears all the market risk of changing interest rates - there are no penalties for a premature surrender of the annuity - it provides a level benefit payment - the owner is guaranteed a fixed interest rate for a specific period of time

the owner is guaranteed a fixed interest rate for a specific period of time - at the end of the period, the owner has the option of taking the accumulated value or reinvesting the values at a new interest rate

All of the following are true of an annuity owner EXCEPT - the owner must be the party to receive benefits - the owner pays the premiums on the annuity - the owner has the right to name the beneficiary - the owner is the party who may surrender the annuity

the owner must be the party to receive benefits - the "owner" is the person who purchases the contract and has all the rights such as naming the beneficiary and surrendering the annuity - the owner does not have to be the one to receive the benefits (can be the annuitant if different or beneficiary)

What happens if a deferred annuity is surrendered before the annuitization period? - the insurer can only apply the surrender value toward another annuity - deferred annuities cannot be surrendered prior to the annuitization period - the owner will receive the surrender value of the annuity - the owner will only receive a refund of premium

the owner will receive the surrender value of the annuity

All of the following statements are true regarding installments for a fixed amount EXCEPT - this option pays a specific amount until the funds are exhausted - the annuitant may select how big the payments will be - the payments will stop when the annuitant dies - value of the account and future earnings will determine the time period for the benefits

the payments will stop when the annuitant dies - installments for a fixed amount option has no life contingencies - specific amount of benefits will be paid until funds are exhausted whether or not the annuitant is living