Annuity Quiz Questions
Contracts that provide payments based on the investment return of a segregated asset account are called A) variable life insurance and annuities B) participating annuities C) segregated life insurance D) whole life insurance
A) variable life insurance and annuities *Variable life insurance and annuities provide payments based on the investment return of an asset account that is segregated from the insurer's general investment account. These accounts are known as separate accounts.
The owner of an annuity contract possesses all the following rights EXCEPT A) to advance the deferred annuity's starting date to an earlier date than that which is stated in the contract at issue B) to cancel a deferred annuity at any time and receive its full cash value C) to designate the contract's annuitant and the beneficiary D) the determine the annuity income settlement option even when the annuitant is another person
B) to cancel a deferred annuity at any time and receive its full cash value *While the owner of an annuity contract enjoys many rights of ownership, including the right to move up (but not push back) the annuity starting date in a deferred annuity, most deferred annuities have a surrender or withdrawal charge that reduces distributions made in the early years of the contract.
A variable annuity is based on which of the following? A) equity investments (stocks and bonds) B) variable premiums C) the Dow Jones Industrial Average D) CD rates
A) equity investments (stocks and bonds) *Variable annuities are based on equity investments and payments. They vary with the value of the investments in a separate account.
To supplement their income in their senior years, Harold purchased a fixed immediate annuity at age 65, naming his wife, Lucy, as the joint annuitant under a joint and 50% survivor annuity payout option that pays the couple $1,000 per month. If Harold were to die today, which of the following statements would be CORRECT? A) Lucy would continue receiving monthly benefits of $500 for the remainder of her life B) Lucy would continue receiving monthly benefits of $500, but only for her remaining life expectancy, at which time payments would cease if she were still alive C) Lucy would continue receiving monthly benefits of $1,000, but only for her remaining life expectancy, at which time payments would cease if she were still alive D) Lucy would continue receiving monthly benefits of $1,000 for the remainder of her life
A) Lucy would continue receiving monthly benefits of $500 for the remainder of her life *Under a 50% joint and survivor annuity income option, annuity payments are payable as long as both annuitants are alive. However, at the first death, the payment amount would decrease to 50% of the original amount.
Who, besides the state, regulates the sale of variable life insurance and variable annuities? A) the Securities and Exchange Commission (SEC) B) the Federal Trade Commission (FTC) C) the National Association of Insurance Commissioners (NAIC) D) the Federal Communications Commission (FCC)
A) the Securities and Exchange Commission (SEC) *Federal securities laws apply to insurers who issue variable annuities and variable life insurance. Therefore, these insurers must comply with regulations of both the state and the SEC.
Which of the following statements regarding a variable annuity is TRUE? A) the rate of return credited to the separate account is guaranteed B) the investment risk is borne by the annuitant/contract owner C) the value of the amount of the annuity over the life of the accumulation period is guaranteed D) the amount of the annuity benefit payments is guaranteed
B) the investment risk is borne by the annuitant/contract owner *Unlike a fixed annuity, a variable annuity guarantees neither the rate of return the annuity fund will earn nor the amount of benefit payments the annuitant will receive. Both are dependent on how well the variable annuity's underlying investments perform.
Variable annuities are regulated as A) both insurance products and securities B) unilateral contracts C) LTC insurance D) health insurance under the Affordable Care Act
A) both insurance products and securities *Variable annuities are considered securities and insurance products; as such, they are regulated by both the state insurance departments and the Securities and Exchange Commission (SEC).
Matteo owns a non-qualified deferred annuity that has a current value of $50,000. He has 2 children, ages 11 and 17. If he decides to devote this annuity solely to help pay for their college education, and his goal is to maximize the annuity income payments, which of the following is the best option? A) convert to an immediate annuity using a 10-year period certain annuity option B) convert to an immediate annuity using a 10-year period certain and life annuity income option C) convert to an immediate annuity using a straight life annuity income option D) convert to an immediate annuity with an installment refund annuity income option
A) convert to an immediate annuity using a 10-year period certain annuity option *Distributing a lump sum of money over a specified period of time with a period certain annuity only will generate a higher annuity payment amount than any option that includes a life contingency.
The time during which funds are being paid into an annuity is called A) the annuity period B) the accumulation period C) the savings period D) the paid-up period
B) the accumulation period *The accumulation period is the time during which funds are being paid into the annuity in the form of premiums by the contract holder and interest earnings credited by the insurer. The payout or annuity period is the point at which the annuity ceases to be an accumulation vehicle and begins to generate income payments on a regular basis.
Which of the following statements regarding an immediate annuity is NOT correct? A) a single premium immediate annuity is designed to make its first benefit payment to the annuitant at the first payment after a delay of 1 payment interval from the date of purchase B) an immediate annuity must make its first payment within 12 months from the purchase date C) an immediate annuity has a long accumulation period D) an immediate annuity is funded with a single payment
C) an immediate annuity has a long accumulation period *Because an immediate annuity makes its first payment at the first payment from the date of purchase, and because most annuities make monthly payments, an immediate annuity would typically pay its first payment 1 month from the purchase date; thus, an immediate annuity has a relatively short accumulation period.
James died after receiving $180 monthly for 6 years from a $25,000 installment refund annuity. His spouse Lucy, as beneficiary, now will receive the same monthly income until her payments total A) $12,040 B) $2,160 C) $12,960 D) $25,000
A) $12,040 *Under the life with refund annuity, aka an installment (refund) annuity, the beneficiary receives the same monthly income (minus payments previously paid to the original annuitant) until the face amount is exhausted. In this case, the original $25,000 annuity fund has paid $12,960, leaving $12,040 for Lucy.
An equity-indexed annuity A) has its interest tied to a stock market-related index B) does not have a fixed minimum guarantee C) can decrease in value D) is very similar to a variable annuity
A) has its interest tied to a stock market-related index *An equity-indexed annuity has most of the features of fixed annuity contracts except that the interest credited to the annuity owner's account is tied to a stock market-related index, such as the Standard & Poor's 500 Index. Unlike variable annuities, an equity-indexed annuity cannot decrease in value and has a fixed minimum guarantee.
Rick purchased an annuity, making a single lump-sum payment on September 1. His benefits began on October 1. What kind of annuity did Rick buy? A) deferred B) immediate C) continual D) secondary
B) immediate *Annuities can be classified as immediate or deferred, depending on when benefits begin. An immediate annuity begins benefit payouts 1 payment interval following the annuitant's initial payment to the company. Immediate annuities are always purchased with a single payment. In contrast, a deferred annuity begins benefit payouts after a period longer than 1 payment interval.
George and Virginia have an annuity that will provide benefits for George's life and then continue to provide the same amount of benefits to Virginia as his survivor. What type of annuity did George set up? A) temporary annuity certain B) joint life and survivorship annuity C) life annuity with period certain D) joint life annuity
B) joint life and survivorship annuity *The joint survivor annuity is often purchased by married couples who want to guarantee that the surviving spouse will receive regular income for life. Other annuity products have the possibility of the surviving spouse outliving the income payments.
The amount of an annuity payment depends on all of the following factors EXCEPT A) the assumed rate of interest B) the insurer's reserves C) the annuitant's age and gender D) the length of the payment guarantee
B) the insurer's reserves *The amount of annuity payment depends on several factors: starting principal, assumed rate of interest, length of the income guarantee period, and the annuitant's age and gender. By knowing the original sum of money (the principal), the length of the payment period and an assumed rate of interest, as well as the age and gender of the annuitant, one can calculate the payment amount. Actuaries use tables of annuity factors to accomplish this.
If both an older and younger person had annuity funds of the same amount and simultaneously began to receive monthly life payments, which individual would receive the larger payments? A) the amount of the payment is based on the purchase date of the annuity B) both would receive the same amount C) the older person D) the younger person
C) the older person *If both an older and a younger person had annuity funds of the same amount and simultaneously began to receive monthly payments, the older person would receive the larger payments, since the insurer would expect to pay the older person for a shorter time according to life expectancy.
Jessie owns a deferred fixed annuity in which the contractually guaranteed rate is 3%. The contract also has a standard current rate of interest provision. If current rates are 5%, what rate of interest will be credited to Jessie's annuity? A) 3% B) 8% C) 4% D) 5%
D) 5% *The current rate is the rate actually credited to the annuity. It can be higher than, but never lower than, the contractually guaranteed rate.
If an annuitant has a refund annuity and dies after the annuity income begins, her beneficiary will receive A) nothing B) a predetermined lump-sum cash payment C) a lump-sum cash payment equal to the starting annuity fund D) a lump-sum cash payment equal to the starting annuity fund, less the amount of income already paid to the deceased
D) a lump-sum cash payment equal to the starting annuity fund, less the amount of income already paid to the deceased *If an annuitant has a cash refund annuity and dies after the annuity income begins, her beneficiary will receive a D) a lump-sum cash payment equal to the starting annuity fund, less the amount of income already paid to the deceased.
Which of the following statements regarding annuities is NOT correct? A) annuities that pay benefits in specified dollar amounts are fixed annuities; annuities that pay benefits in relation to units are variable annuities B) an annuity can be classified as immediate or deferred, depending on when benefit payments begin C) pure life annuities provide income as long as the annuitant lives; benefits terminate at death D) an installment refund annuity guarantees a specific amount of benefits, payable to the annuitant only; if death occurs before total payout, an amount equal to all premiums is refunded to the annuitant's estate or beneficiary
D) an installment refund annuity guarantees a specific amount of benefits, payable to the annuitant only; if death occurs before total payout, an amount equal to all premiums is refunded to the annuitant's estate or beneficiary *A refund annuity guarantees a specific amount of benefits, which will be paid whether or not the annuitant is alive to receive them. If the annuitant dies before receiving this minimum guaranteed benefit, the difference is paid to the beneficiary or to the estate. The money can be in a lump sum (cash refund) or in installments (installment refund).
Annuity buyers who want their product to be supported by the insurers' general accounts would most likely be looking for interest returns that A) will keep pace with inflation B) can compete with equity investment returns C) can go up but can never go down D) are guaranteed never to be less than the rate specified in the contract
D) are guaranteed never to be less than the rate specified in the contract *Life insurance and annuity policies that are supported by the insurer's general account include a provision that guarantees interest returns to never be less than the rate specified in the contract.