Annuities

Question 5 of 15 An agent selling variable annuities must be registered with AThe Guaranty Association. BSEC. CFINRA. DDepartment of Insurance.

FINRA. Because variable annuities are considered to be securities, a person must be registered with the FINRA (formerly NASD) and hold a securities license in addition to a life agent's license in order to sell variable annuities.

Question 13 of 15 Which of the following products requires a securities license? AEquity Indexed annuity BDeferred annuity CVariable annuity DFixed annuity

Variable annuity A variable annuity is considered to be a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities.

Question 14 of 15 An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin after 1 year since the annuity was purchased. What type of annuity is it? AFlexible premium BImmediate CDeferred DFixed

Deferred Deferred annuities may be purchased with either a single lump sum or periodic payments, but they do not begin the income payments until sometime after 1 year from the date of purchase.

Question 10 of 15 If an annuitant dies before annuitization occurs, what will the beneficiary receive? AEither the amount paid into the plan or the cash value of the plan, whichever is the lesser amount BAmount paid into the plan CCash value of the plan DEither the amount paid into the plan or the cash value of the plan, whichever is the greater amount

Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount If an annuitant dies before annuitization, the beneficiary will receive either the amount paid into the plan or the cash value of the plan, whichever is greater.

Question 8 of 15 If a beneficiary is NOT named for annuity benefits, to which entity will the benefit be paid? AThe insurance company BThe annuitant's estate CThe next of kin DThe state government

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. If a beneficiary is not named, the money will be paid to the annuitant's estate.

Chapter: Annuities Question 4 of 15 Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income? APay-out period BLiquidation period CDepreciation period DAnnuitization period

Depreciation period The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period.

Question 6 of 15 When a fixed annuity owner pays a monthly annuity premium to the insurance company, where is this money placed? AEach contract's separate account BThe annuity owner's account CThe insurance company's general account DForwarded to an investor

The insurance company's general account Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. 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.

Question 11 of 15 An insurance company forwards fixed annuity premiums to their general account, where the money is invested. The guaranteed minimum interest is set at 2.5%. During an economic downswing, the investments only drew 2%. What interest rate will the insurer pay to its policyholders? A2% B2.5% C3% DWhatever interest rate the company deems appropriate

2.5% Insurance companies promise guaranteed minimums on the fixed annuities (2.5% in this scenario). This means that if the investments draw less than that, the company will have to pay 2.5% anyway. If the investments earn over 2.5%, the company will pay that excess.

Question 9 of 15 Which of the following is NOT true regarding the Life with Guaranteed Minimum annuity settlement option? APayments can be made in installments and as a single cash refund. BIt does not guarantee that the entire principal amount will be paid out. CIt is a life contingency option. DThe beneficiary receives the remainder of the principal amount upon the annuitant's death.

It does not guarantee that the entire principal amount will be paid out. With the Life with Guaranteed Minimum annuity settlement option, if the annuitant dies before the principal amount (the amount paid for the annuity) has been paid out, the remainder of the principal amount will be refunded to his/her beneficiary. Pure life provides the highest monthly benefits for an individual annuitant.

Question 7 of 15 Which of the following is TRUE regarding variable annuities? AA person selling variable annuities is required to have only a life agent's license. BThe annuitant assumes the risks on investment. CThe funds are invested in the company's general account. DThe company guarantees a minimum interest rate.

The annuitant assumes the risks on investment. 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.

Question 12 of 15 Why is an equity indexed annuity considered to be a fixed annuity? AIt is not tied to an index like the S&P 500. BIt has a guaranteed minimum interest rate. CIt has modest investment potential. DIt has a fixed rate of return.

It has a guaranteed minimum interest rate. While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

Question 15 of 15 Which of the following will NOT be an appropriate use of a deferred annuity? AAccumulating funds in an IRA BFunding a child's college education CCreating an estate DAccumulating retirement funds

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.