Annuities

C

Alan's past actions as an insurance producer have indicated that he may reasonably be expected to cause significant harm to seniors. What measures may insurance regulators take to mitigate that possible harm? a. impose a 6-month jail term b. revoke Alan's license c. suspend Alan's license pending a hearing d. impanel a grand jury to investigate his sales practices

C

An annuity replacement would be deemed necessary if: I. the replacement required the insured to pay a surrender charge for the existing annuity II. the replacement annuity does not confer a substantial financial benefit to the purchaser over its life a. I only b. II only c. both I and II d. neither I nor II

B

If Alan's exclusion ratio is 60%, and he receives $1,000 per month under the contract, how much will he be required to include as ordinary income each year? a. $0 b. $4,800 c. $7,200 d. $12,000

D

Which of the following may request a fair hearing on the issue of an undue hardship with respect to Medi-Cal denial? I. an individual requesting medical assistance for home and facility care II. a personal representative of an individual requesting medical assistance for home and facility care III. the facility in which the individual requesting medical assistance for home and facility care is residing a. I and II only b. II and III only c. I and IIII only d. I, II, and III

B

Ellen applied for Medi-Cal and notified the state that she prohibits the state from becoming a remainder beneficiary of her annuity. In what will such a notification result? a. Medi-Cal eligibility will be denied b. The annuity will be treated as an asset transfer for less than market value c. The annuity will be confiscated. d. Nothing; annuities are not considered in determining Medi-Cal eligibility

A

Ellen purchased a straight life annuity for $100,000 and died after receiving 5 periodic income payments of $1,500 each. How much can her beneficiary expect to receive under the annuity? a. $0 b. $92,500 c. the present value of the remaining periodic payments if the owner had lived to her life expectancy d. $100,000

C

Harry paid $50,000 for a nonqualified deferred annuity. At the time he took a $15,000 loan from the contract, the accumulated value had grown to $60,000. How much, if any, of the loan is considered taxable income, assuming he had never before taken a distribution from the annuity? a. $0 b. $15,000 c. $10,000 d. $50,000

B

Harry, age 45, purchased a nonqualified deferred annuity 10 years ago with a $100,000 single premium and never previously took a cash value distribution from it. To what premature distribution tax penalty will he be subject if he takes a $25,000 distribution from the annuity when its cash value is $120,000, assuming no exception to the penalty applies? a. $0 b. $2,000 c. $2,500 d. $500

D

Hillary made a misrepresentation to an annuity purchaser that resulted in a loss to the victim calculated to be $30,000. What is the maximum fine that may be imposed on her as a result of her misrepresentation? a. $5,000 b. $25,000 c. $30,000 d. $90,000

A

Hillary purchased an immediate life annuity with a 20-year period certain at age 65 for $100,000 that provided monthly periodic payments of $1,000. She died at the age of 95. What, if anything, is her beneficiary entitled to? a. $0 b. 20 years of income payments c. $60,000 d. $100,000

A

How often must an agent complete 4-hour annuity continuing education credits? a. every 2 years b. annually c. only once d. every 5 years

B

Peter was found guilty of violating the CIC provisions providing protection to seniors. What is the minimum administrative penalty that may be imposed for his first offense? a. 30 hours of community service b. a penalty of $1,000 c. revocation of his insurance license d. a penalty of $25,000

D

Which of the following may use annuity contracts to accumulate contributions on a before-tax basis? I. IRA II. TSA III. SEP a. I and II only b. I and III only c. II and III only d. I, II, and III

C

An immediate annuity is defined as an annuity contract in which the first periodic payment is made: a. within 5 years b. within 2 years c. one income payment interval after purchase d. monthly

A

Annuities involving annuitants and owners who are different persons are considered: a. to have a complex structure b. to be unenforceable c. illegal d. annuitant-driven

B

Arthur has violated California rules concerning agent advertising. Because this is his third violation, he may be assessed a maximum fine of what amount? a. $150 b. $1,000 c. $200 d. $500

A

As initially conceived, an annuity was: I. a product designed to systematically liquidate a principal sum II. a product with which to accumulate sums of money a. I only b. II only c. both I and II d. neither I nor II

A

Audrey allocated her variable annuity premium to an aggressive stock variable subaccount. Now that she has reached age 55, she feels that she should assume a more conservative investment allocation and has decided to transfer the funds in the stock subaccount to the bond subaccount. If Audrey is in a 25% tax bracket and her account has $100,000 of unrecognized gain, what will be Audrey's income tax liability resulting from her reallocation? a. $0 b. $2,500 c. $25,000 d. $27,500

D

Audrey owned a nonqualified deferred annuity for which she had paid total net premiums of $50,000; it had accumulated value of $75,000 at the time of her gifting it to her son. How much, if any, income will Audrey be required to recognize in the year of the gift? a. $0 b. $75,000 c. $50,000 d. $25,000

B

Corporations that own annuity contracts generally receive the same income tax benefits enjoyed by natural persons. a. True b. False

D

MegaMutual has been found guilty of violating the CIC provisions related to annuity replacement. What maximum fine may be imposed? a. $5,000 b. $30,000 c. $50,000 d. $300,000

C

Qualified annuities can be used for which of the following? I. accumulating funds II. distributing funds a. I only b. II only c. both I and II d. neither I nor II

C

Sally paid $100,000 for her nonqualified immediate annuity, and she has an expected return under it of $150,000. What is her exclusion ratio? a. 0% b. 33.3% c. 66.7% d. 100%

B

The bulk of long-term care costs are paid by Medicare. a. True b. False

A

The principal advantage of a life annuity is in its providing an income that cannot be outlived. a. True b. False

B

Under a(n)_________, the insurer will reduce the value of the annuity if interest rates in the overall economy have increased. a. surrender charge b. market value adjustment c. M&E risk charge d. premium expense adjustment

A

What is generally considered the principal disadvantage of a fixed annuity? a. lack of liquidity b. lack of guarantees c. market risk d. harsh income tax treatment

C

What is the aggregate amount of association coverage on any one life for all life insurance and annuity contracts? a. $50,000 b. $100,000 c. $250,000 d. $500,000

C

What is the interest to be credited in an indexed annuity based on? I. an interest index II. an equity index a. I only b. II only c. either I or II d. neither I nor II

C

What is the maximum administrative penalty that may be imposed for an insurance producer's second violation of the CIC provisions that provide protections to seniors? a. $1,000 b. $5,000 c. $50,000 d. $300,000

B

What is the maximum amount of annuity benefits the association coverage will provide on any one life? a. $50,000 b. $100,000 c. $250,000 d. $500,000

A

What is the minimum fine that may be imposed in California for an insurance producer's first violation of the duty of honesty, good faith, and fair dealing he or she owes to prospective insureds age 65 or older? a. $1,000 b. $500 c. $2,500 d. $5,000

B

What is the minimum free-look period that must be given in California to annuity purchasers who are seniors? a. 10 days b. 30 days c. 45 days d. 60 days

D

What is the minimum interest rate that is normally guaranteed when a contract owner allocates his or her premiums to the variable subaccounts in a variable annuity? a. 2.5% b. 3% c. 4% d. There is no guaranteed minimum interest rate for funds allocated to a variable annuity's variable subaccount.

D

What issues affect the insurance agent's annuity sales in the senior market? I. increasing product complexity II. possibly decreasing buyer competence III. surrender charges a. I and II only b. I and III only c. II and III only d. I, II, and III

A

What period of imprisonment may be imposed on an insurance producer who violates CIC Sec. 780 or 781 related to misrepresentation in the sale of an annuity? a. 1 year b. 6 months c. 3 years d. No imprisonment is authorized

D

Which of the following are ways under which annuity interest crediting may be determined ? I. an insurer's periodic declaration of an interest rate II. use of an external index III. performance of a separate account a. I and II only b. I and III only c. II and III only d. I, II, and III

B

Which of the following did NOT contribute to insurers' Depression-era financial problems stemming from the sale of annuities? a. medical advances in the eradication of dread diseases b. high inflation levels c. improvement in medical treatment and facilities d. low interest rates

C

Which of the following generally affects the level of risk that a senior client can reasonably assume? I. time horizon II. ability to earn additional income a. I only b. II only c. both I and II d. neither I nor II

D

Which of the following influenced insurers to introduce variable annuities? I. the post-war economic boom II. consumers' experience with mutual funds III. consumer demand a. I and II only b. I and III only c. II and III only d. I, II, and III

D

Which of the following investment portfolios is/are normally offered in a variable annuity contract's separate account? I. a money market fund II. a bond fund II. a stock fund a. I and II only b. I and III only c. II and III only d. I, II, and III

B

Which of the following is NOT an available annuity product? a. a flexible premium deferred annuity b. a flexible premium immediate annuity c. a single premium deferred annuity d. a single premium immediate annuity

A

Which of the following is NOT generally an insurance concern shared by senior clients? a. disability insurance b. health insurance c. long-term care insurance d. estate planning

C

Which of the following is generally considered the simplest annuity design? a. a variable annuity b. an indexed annuity c. a declared-rate fixed annuity d. a bonus annuity

D

Which of the following may constitute cause for the suspension or revocation of an agent's license? I. inducing a client to make a loan to the agent II. inducing a client to name the agent's wife a beneficiary III. inducing a client to invest in the agent's brother's business a. I and II only b. I and III only c. II and III only d. I, II, and III