INS 211 Ch 14

Donna, age 50, is single and earns $40,000 annually. She is covered under her employer's retirement plan. Donna would like to start a traditional IRA and contribute $4,000 this year. Which of the following describes her ability to establish a traditional IRA and the tax treatment of her contribution?

Her contribution is FULLY tax deductible.

Which of the following statements is (are) true with respect to an equity-indexed annuity? I. The maximum percentage gain is usually capped. II. There is no downside protection against loss of principal if the annuity is held to term.

I only

Which of the following statements is (are) true with respect to a joint-and-survivor annuity? I. Some joint-and-survivor annuities reduce the income payment after the first annuitant dies. II. No payments are made after the first annuitant dies.

I only.

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.

I only.

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.

II only

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.

II only

Which of the following statements is (are) true with regard to Roth IRAs? I. The portion of a Roth IRA distribution that is attributable to investment income is taxable. II. There is a maximum income level above which Roth IRA contributions are not allowed.

II only

Which of the following statements regarding the taxation of individual annuities is (are) true? 4 I. The exclusion ratio is the percentage of the annuity income that is taxable. II. After the net cost of the annuity has been paid to the annuitant, the total annuity payment is taxable.

II only

Rita is 66 years old. She earned $20,000 this year working part-time at a store and her modified adjusted gross income was $28,000. Rita is considering making a $3,000 contribution to her traditional IRA. Which of the following statements is true regarding this contribution?

Rita can make a $3,000 contribution to her traditional IRA, and it is FULLY tax deductible.

All of the following statements about traditional and Roth IRAs are true EXCEPT

Traditional IRAs are exempt from the penalty tax on premature distributions.

Which of the following statements about variable annuities is true?

Variable annuities typically provide a guaranteed death benefit payable to a beneficiary if the annuitant dies prior to retirement.

During the funding period, the premiums paid for a variable annuity are used to purchase

accumulation units.

Insurers offering variable annuities charge a number of fees and expenses. One category of fees and expenses is charged to cover the cost of record keeping, paperwork, and periodic reports to annuity owners. This expense is the

administrative charge.

Which of the following statements is (are) true with respect to the cash annuity settlement option? I. The taxable portion of the distribution is subject to federal and state income taxes. II. The option results in adverse selection against the insurer as those in poor health are more likely to take cash than to annuitize the funds.

both I and II

Which of the following statements is (are) true with respect to variable annuities? I. The price at which accumulation units can be purchased fluctuates during the funding period. II. The value of annuity units fluctuates over time.

both I and II.

Stan paid an insurance company $50,000 for a fixed annuity when he was 50 years old. At age 62, Stan plans to begin to receive payments from the insurer. There are no guarantees on the number of payments he will receive. Based on the description provided, this annuity can be described as a(n)

deferred annuity.

When selling life annuities, what risk is the insurer pooling?

excessive longevity

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

investment management charge.

Agnes and Mary Clare, two elderly sisters, own an annuity covering both of their lives. The annuity pays benefits to them until the first sister dies, then the annuity terminates. Agnes and Mary Clare own a(n)

joint life annuity.

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 annuity payout options will provide Brad with the highest monthly income?

life annuity (no refund)

Cassie, age 62, paid a life insurer $100,000 in exchange for a life annuity. If Cassie dies before receiving 120 monthly payments from the insurer, the remaining payments will be made to a beneficiary. If Cassie dies after receiving 120 payments, no additional payments are made by the insurer. The annuity option Cassie selected it

life annuity with period certain.

Which of the following is a permissible IRA investment alternative?

mutual funds

Which of the following persons can establish a traditional IRA? I. A person whose only income received is from investments. II. A 75 year-old man who has earned taxable income.

neither I nor II

James is concerned that if he purchases a fixed immediate annuity his funds will be tied-up and not accessible if an emergency arises. His insurance agent said that a rider could be attached to his annuity to address this concern. The rider is a(n)

partial cash withdrawal rider.

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 kept by the insurer is a(n)

surrender charge.

Carl is concerned that if he purchases an equity indexed annuity, he will lose money long- term if the stock index declines. Which equity indexed annuity provision assures Carl that he will not lose money if he holds the equity indexed annuity to term?

the guaranteed minimum value

With an equity-indexed annuity, what name is given to the method of crediting excess interest to the annuity?

the indexing method

Under an equity-indexed annuity, what name is given to the percentage increase in the stock index that is credited to the contract?

the participation rate

Life annuity payments are made up of all of the following EXCEPT

unliquidated principal of annuitants who live too long.

Daryl, age 42, quit his job. His employer offered a defined contribution pension plan, and the balance in the account was $30,000 when Daryl quit. He can avoid immediate taxation of these funds by

using an IRA rollover account.

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity. Juanita will receive $500 per month from the insurer, and her life expectancy is 15 years (180 months). Assume that Juanita receives 12 monthly payments of $500 the first year. How much taxable income must she report?

$3,000

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity. Juanita will receive $500 per month from the insurer, and her life expectancy is 15 years (180 months). If Juanita is alive 20 years later, how much of the $6,000 received during the year is taxable?

$6,000

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity. Juanita will receive $500 per month from the insurer, and her life expectancy is 15 years (180 months). What is the exclusion ratio in this case?

50.00 percent