Chapter 9: Annuities
remain a constant dollar amount for the duration of the annuity period
Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will
not distributed to life annuitants who died before life expectancy
Sarah, age 88, is a life annuitant who has lived beyond her life expectancy. The funds for additional benefit payments will be derived primarily from funds that were
capital liquidation
Taking a sum of money and decreasing it in size would fit the description of
If the interest rate falls below a specified level, the surrender charge is waived
A single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct?
immediate annuity
An annuity which starts paying monthly benefits within a month after issuance is called a(n)
continue after the purchase payments stop
An annuity's accumulation period can usually
Mary
John bought a deferred annuity on Mary. John amends the contract years later to name Tom as the recipient of the proceeds if Mary dies. Who is the annuitant for this contract?
Ages 71 and 73
Based on age criteria only, which of the co-annuitants listed below would receive the largest monthly benefit payments in a joint and 100% survivor annuity?
makes only one premium payment
The contract owner in a single premium deferred annuity (SPDA)
nonforfeiture options
The contractual rights that allow the owner of a deferred annuity to surrender the cash value several years before the annuity date are called
the amount of an annuity payment subject to income tax
The exclusion ratio determines
Owner
Who typically makes the purchase payments in an individual annuity?
Reflects changes in the market value of assets in a separate account
How do benefit payments fluctuate over time in a variable life annuity?
contract guaranteed rate
Interest is credited to a fixed annuity no lower than the
Group deferred annuity
The administrator for a company's pension plan bought an accumulation annuity contract for its 2,000 employees. All 2,000 participating employees received certificates of participation. What kind of contract is this?
Fixed life annuity with period certain
Tori has an annuity that pays her a $500 per month income benefit for life or for ten years, whichever is longer. What kind of annuity is this?
Savings depletion because of longevity
What does a fixed life annuity offer protection against?
Owner
The power to change the beneficiary in an individual annuity lies with the
When the contract has been held for a stated time period
Under which circumstance is the interest rate guaranteed within a market value adjusted annuity?
The market value fluctuations of the securities backing it
What determines how much an annuitant is paid for a variable annuity?
Subject to market value adjustment
What happens to the cash value of a market value adjusted annuity if it's surrendered prior to the end of the stated guarantee period?
When the distributions are received from the contract
When does interest income for a flexible premium deferred annuity get reported for federal income taxes?
Time of purchase
When does the owner's contractual rights begin under an individual annuity contract?
Protection against long-term inflation
Which benefit can be found in an equity indexed annuity, but not in a fixed annuity?
When the contract is annuitized
Which event triggers a deferred annuity to start making benefit payments to the annuitant?
$200,000
A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today?
Owner
When a deferred annuity is surrendered, who must sign the authorization to do so?
An immediate annuity
When a large sum of money is used to structure monthly payments, which product is typically used?
decrease in size
When a sum of money undergoes capital liquidation, that sum will
Annual investment gains are included in participant's gross income
Which statement is INCORRECT concerning a tax-sheltered annuity (TSA)?
Joint and survivor annuity
Which of these pays an income to two or more annuitants until the death of the last annuitant?
Limited perils and amounts
What is covered under a limited accident and health insurance policy?
Transfers some of the investment risk to the policyowner
What is the effect of the market value adjustment in a market value adjustment annuity?
Benefit payments are always fully taxable
What is the tax treatment of benefit payments for a non-qualified annuity?
Investment risk is assumed by the purchaser
When compared to a fixed annuity, a variable annuity has what distinguishing feature?
annuitant
When dealing with single-life annuities, there is only one
Taxed as ordinary income in the year received
How are monthly life annuity benefit payments treated under a tax sheltered annuity (TSA)?
Group deferred annuity
A large corporation purchases an accumulation annuity contract where all of the participating employees receive certificates of participation. What is this contract called?
period certain
A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called
guaranteeing benefit payments for a stated minimum period of time
A life annuity with period certain is characterized as
Joint and survivor annuity
A retired couple would like to maximize the income derived from their life savings and have it payable until they both die. Which annuity would be their best choice?
Deferred annuity
An individual, age 45, would like to help pay for his daughter's college expenses in 10 years. Which annuity would be appropriate for this individual?
premiums paid into the annuity
An owner's cost basis for a non-qualified deferred annuity is typically the same as the
receives benefit payments at regular intervals
During an annuity's liquidation phase, the annuitant normally
Annuitant
During the liquidation phase of an annuity contract, to whom are the income benefits normally payable to?
Funding a non-qualified deferred compensation plan
A business may purchase an annuity for all of the following reasons EXCEPT
surrender charge
The back-end charge typically associated with an annuity that has been cancelled during the early contract years is called a
tax-deductible
The interest credited to the cash values of personally-owned non-qualified annuities is considered
taxable as ordinary income
The interest paid during an annuity's payout period is considered
make multiple premium payments
The owner of a single premium deferred annuity is entitled to do all of these EXCEPT
annuitant dies or becomes disabled
The surrender charge on many deferred annuity contracts are waived when the
Decreases
What happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up?
Settlement will be reduced
When an annuity contract has been surrendered, how will the surrender charges affect the final contract settlement?
expenses and withdrawals
When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest minus
Flexible premium fixed annuity
Which of the following contracts offer deferred taxation, flexible payments, a guaranteed interest rate, and death benefits equal to the cash value?
An annuity exchanged for a life insurance policy
Which of the following is NOT a valid contract exchange?
Create new funds upon the death of a wage-earner
Which of the following is NOT an intended use of an annuity?
Lack of an accumulation period
Which of the following normally pertains to an immediate annuity?
Setting up a college savings fund for a young child
Which of the following would NOT be appropriate for an immediate annuity?
Retiree having a lump sum to invest
Which of the following would most likely purchase an immediate annuity?
Surrender charges
Which of these annuity features is meant to discourage withdrawals and exchanges?
The owner can be the beneficiary, annuitant, or neither
Which statement concerning a deferred annuity is correct?
