Life quiz 2
Which of the following will NOT be an appropriate use of a deferred annuity?
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.
Which of the following is NOT fundable by annuities?
Death benefits - Annuities are most commonly used to fund a person's retirement, but they can technically be used to accumulate cash for any reason. Annuities can also be used to liquidate an estate. Annuities do not provide death benefits; those are provided by life insurance.
An agent selling variable annuities must be registered with
FINRA - Because variable annuities are considered to be securities, a person must be registered with the FINRA and hold a securities license in addition to a life agent's license in order to sell variable annuities.
Which of the following is TRUE regarding the accumulation period of an annuity?
It is a period during which the payments into the annuity grow tax deferred. - The accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.
Which of the following is NOT true regarding the accumulation period of an annuity?
It would not occur in a deferred annuity. - The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity).
Which of the following is TRUE regarding variable annuities?
The annuitant assumes the risk of investments. The payments that the annuitant invests into the variable annuity are invested in the insurers 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.
Which of the following is NOT true regarding the annuitant?
The annuitant cannot be the same person as the annuity owner. - While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person.
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?
The annuitant must be a natural person. - 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.
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 cash value will be paid to the annuitant's estate. - If an annuitant dies during the accumulation period, the beneficiary is paid either the cash value of the policy or the amount of premiums paid, whichever is the larger amount. In this case, a beneficiary is not named, so the cash value will be paid to the annuitant's estate.
Who bears all of the investment risk in a fixed annuity?
The insurance company. - Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.
What happens if a deferred annuity is surrendered before the annuitization period?
The owner will receive the surrender value of the annuity. - If a deferred annuity is surrendered prior to annuitization, the surrender value of the annuity is guaranteed according to the nonforfeiture provision.
Which of the following best describes what the annuity period is?
The period of time during which accumulated money is converted into income payments - The annuity period is the time during which accumulated money is converted into an income stream.
Which of the following is NOT true regarding Equity Indexed Annuities?
They earn lower interest rates than fixed annuities. - Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.
Under which installments option does the annuitant select the amount of each payment, and the insurer determines how long they will pay benefits?
a fixed amount - Under the installments for a fixed amount option, the annuitant selects the amount of each payment, and the insurer determines how long they will pay benefits. This option pays a specific amount until the funds are exhausted. There are no life contingencies.
Annuities can be used to fund which of the following?
retirement plans - Since annuities are a popular means to provide retirement income, they are often used to fund qualified retirement plans.
