Annuities

After three years of making payments into a flexible premium deferred annuity, the owner decides to surrender the annuity. The insurer returns all the premium payments to the owner, except for a predetermined percentage. What is this percentage called? AInflation adjustment BSurrender charge CTermination penalty DBail-out charge

b If a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.

Which of the following best describes what the annuity period is? AThe period of time from the effective date of the contract to the date of its termination BThe period of time during which accumulated money is converted into income payments CThe period of time from the accumulation period to the annuitization period DThe period of time during which money is accumulated in an annuity

b The annuity period is the time during which accumulated money is converted into an income stream.

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? ANo payments BAnnuity dividends CFull premium refund without any charges DGuaranteed surrender value

d The nonforfeiture law stipulates that a deferred annuity must have a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization.

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

b If a deferred annuity is surrendered prior to annuitization, the surrender value of the annuity is guaranteed according to the nonforfeiture provision.

The minimum interest rate on an equity indexed annuity is often based on AAn index like Standard & Poor's 500. BThe returns from the insurance company's separate account. CThe annuitant's individual stock portfolio. DThe insurance company's general account investments.

a Equity indexed annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity, the equity indexed annuity has a guaranteed minimum interest rate. Interest rates on equity indexed annuities are often tied to a familiar index, such as the Standard and Poor's 500.

Annuities can be used to fund which of the following? AEstate creation BRetirement plans CVariable life insurance DGroup life insurance

b Since annuities are a popular means to provide retirement income, they are often used to fund qualified retirement plans.

If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined? AIt is a flat fee determined by the annuity owner when the annuity is purchased. BIt will increase as the accumulation period increases. CIt is a percentage of the cash value and decreases over time. DIt is always 7% of the cash value.

c If a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.

Which of the following is NOT true regarding Equity Indexed Annuities? AThey have guaranteed minimum interest rates. BThey are less risky than variable annuities. CThey earn lower interest rates than fixed annuities. DThe insurance company keeps a percentage of the returns.

c 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.

Which two terms are associated directly with the way an annuity is funded? ARenewable or convertible BSingle payment or periodic payments CIncreasing or decreasing DImmediate or deferred

b Annuities are characterized by how they can be paid for: either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level, in which the annuitant/owner pays a fixed installment, or the payments can be flexible, in which the amount and frequency of each installment varies.

Which of the following is TRUE regarding the annuity period? ADuring this period of time the annuity payments grow interest tax deferred. BIt is also referred to as the accumulation period. CIt is the period of time during which the annuitant makes premium payments into the annuity. DIt may last for the lifetime of the annuitant.

d The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.

Equity indexed annuities AInvest conservatively. BSeek higher returns. CAre more risky than variable annuities. DAre security instruments.

b Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500.

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

b 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.

The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE? AThe insurance company will retain the cash value and pay back the premiums to the owner's estate. BThe money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary. CThe beneficiary will receive the greater of the money paid into the annuity or the cash value. DThe owner's estate will receive the money paid into the annuity.

c If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value, whichever is greater.

Which of the following is TRUE regarding the accumulation period of an annuity? AIt is limited to 10 years. BIt is a period during which the payments into the annuity grow tax deferred. CIt is also referred to as the annuity period. DIt is a period of time during which the beneficiary receives income

b 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.

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

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