Chapter 14: Annuities and Individual Retirement Accounts

B

All of the following are permissible IRA investments, EXCEPT (a) mutual funds. (b) cash value life insurance. (c) individual stocks. (d) bonds.

D

An annuity purchased with one payment is called which of the following? a. limited pay b. continuous pay c. deferred d. none of the above

A

Brad funded a life annuity through installment payments. At age 60, he decided to elect an annuity settlement option and to begin to receive payments. Which of the following life income options will provide Brad with the highest monthly income? (a) life annuity (no refund) (b) life income with payments guaranteed for 5 years (c) life income with payments guaranteed for 10 years (d) installment refund annuity

D

Bridget started to fund a variable annuity. Three years later, she experienced financial difficulty. She called her agent and cancelled the contract. The insurer returned all but 4 percent of the account balance. The 4 percent withheld is a(n) (a) account administration fee. (b) investment management fee. (c) front-end load. (d) surrender charge.

D

During the funding period, the contributions made to a variable annuity plan are used to purchase (a) annuity units. (b) immediate participation shares. (c) mutual fund shares. (d) accumulation units.

D

In offering life annuities, what risk is the insurer pooling? (a) bad investment performance (b) premature death (c) bad expense experience (d) excessive longevity

A

Insurers offering variable annuities charge a number of expenses. One category of expenses is to pay the fund manager and to pay brokerage fees. This expense is the (a) investment management charge. (b) administrative charge. (c) surrender charge. (d) front-end load.

A

Margaret paid an insurance company $50,000 when she was 50 years old. At age 62, Margaret plans to begin to receive payments from the insurer. Based on the description provided, this annuity can be described as a(n) (a) deferred annuity. (b) life annuity with guaranteed payments. (c) immediate annuity. (d) variable annuity.

B

Which of the following statements is (are) true regarding the Roth IRA? I. Roth IRA contributions are tax deductible. II. Roth IRA investment income accumulates income-tax free. (a) I only (b) II only (c) both I and II (d) neither I nor II

B

Which of the following statements is (are) true regarding the taxation of distributions from individual annuities? I. Individual annuity distributions are never taxable. II. Once the annuitant has recovered the premiums he or she paid for the annuity, the entire annuity distribution is taxable. (a) I only (b) II only (c) both I & II (d) neither I nor II

A

Which of the following statements is (are) true with respect to a joint-and-survivor annuity? I. No payments are made after the last annuitant has died. II. No payments are made until after the first annuitant has died. (a) I only (b) II only (c) both I & II (d) neither I nor II

A

Which of the following statements is (are) true with respect to annuities? I. Annuities are the opposite of life insurance. II. The fundamental purpose of annuities is to replace lost income in case of premature death. (a) I only (b) II only (c) both I & II (d) neither I nor II