L&H&A Chapter 9

Which annuity payout option has a distinct beginning and ending? a. Cash b. Lump-sum c. Life annuity d. Period certain

A period certain has a distinct beginning and ending, so if income is needed for life, a life annuity is more suitable. The correct answer is: Period certain

Of the following types of premiums, which is used to buy an immediate annuity? a. Level b. Single c. Flexible d. None of the above

A single premium is used to purchase an immediate annuity. The correct answer is: Single

What is an advantage of fixed annuities? a. Knowing the exact amount of each annuity payment b. Potential for higher interest earnings c. Offsets the effects of inflation d. Investment in the insurer's separate account, which has the potential for higher yields

An advantage of fixed annuities is that the interest rate is guaranteed; therefore, each annuity payment is fixed. The correct answer is: Knowing the exact amount of each annuity payment

Which of the following best describes a contract in which the sole purpose is the systematic liquidation of accrued assets through periodic payments? a. Life insurance policy b. Annuity c. Modified endowment contract d. Qualified plan

An annuity is a contract that liquidates accumulated funds from an account via periodic payments. The correct answer is: Annuity

This fixed annuity has a minimum interest rate and a current interest rate that is tied to the S&P 500: a. Market value adjusted annuity b. Equity indexed annuity c. Fixed annuity d. FPDA

An equity indexed annuity will earn a guaranteed minimum interest rate up to a current interest rate that is tied to an equity index, such as the S&P 500. The correct answer is: Equity indexed annuity

All of the following statements regarding the taxation and interest of deferred annuities are true, EXCEPT: a. The exclusion ratio informs the contract owner of how much of each annuity payment is taxed. b. Premiums are paid with after-tax dollars. c. Interest is taxable in the year it is earned. d. The principal (premiums) earn compound interest.

During the accumulation period of a deferred annuity, the principal earns compound interest on a tax deferred basis. The correct answer is: Interest is taxable in the year it is earned.

All of the following statements are true regarding the interest rate guarantees of fixed annuities, EXCEPT: a. Premiums grow at a fixed interest rate during the accumulation phase. b. Benefits are paid at a fixed interest rate. c. Fixed annuities earn the insurer's current interest rate, which cannot drop below the quoted fixed interest rate. d. If the insurer's current interest rate drops below the quoted fixed interest rate, the insurer will pay the lower current interest rate.

Fixed annuities will earn the insurer's current interest rate. However, contract owners are quoted a guaranteed minimum interest rate (around 4%) that the annuity will earn, at a minimum. If the current interest rate drops below the guaranteed minimum interest rate stated in the contract, the insurer is obliged to pay the guaranteed minimum interest. The correct answer is: If the insurer's current interest rate drops below the quoted fixed interest rate, the insurer will pay the lower current interest rate.

Of the following annuities, for which do the annuity payments cease when the last of several annuitants dies? a. Joint and survivor life annuity b. Market value adjusted annuity c. Index-linked annuity d. All of the above

In a joint and survivor life annuity, benefits are paid to two or more annuitants. Annuity payments cease upon the death of the last annuitant. The correct answer is: Joint and survivor life annuity

Which of the following is characteristic of fixed annuities? a. Variable interest rates during the pay-in period b. Fixed interest rates during the payout period c. Annuity payment amounts are flexible. d. Premiums are invested in the insurer's separate account.

Interest rates are fixed during both phases of the annuity. Each payment amount is fixed, and premiums are invested in the insurer's general account. The correct answer is: Fixed interest rates during the payout period

Jodeen purchases an annuity with a $40,000 lump-sum payment on July 15. She begins to receive monthly annuity payments on August 15. What type of annuity did she buy? a. SPIA b. SPDA c. Deferred d. None of the above

Jodeen purchased a single premium immediate annuity (SPIA). A single premium is used to purchase the immediate annuity, and the payment period begins one payment period from the date the annuity was purchased. The correct answer is: SPIA

Annuities perform the opposite function of: a. Life insurance b. Disability income c. Medical expense insurance d. Retirement plans

Life insurance protects against the chance of premature death; annuities protect against the risk of living too long and depleting financial resources. The correct answer is: Life insurance

Which of the following is not true about the impact of the annuitant's sex on the premium payments? a. Men live more dangerously so their premiums are higher. b. Women live longer than men, so their premiums are higher. c. Both of the above. d. Neither of the above.

Men's premiums are typically lower than women's because their life expectancy is shorter. The dangers of their lifestyle may impact life insurance premiums, but do not impact the annuity premiums. The correct answer is: Men live more dangerously so their premiums are higher.

Which of the following is a personal use of annuities? : a. Life income b. IRAs c. Tax-deferred growth/cash accumulation d. All of the above

Personal uses of annuities include: life income, IRAs, cash accumulation, retirement income and education funds. The correct answer is: All of the above

All of the following statements are true regarding the accumulation period in an annuity, EXCEPT: a. The accumulation period is the pay-in period. b. During the accumulation period, the contract owner makes premium payments into the annuity. c. During the accumulation period, the principal earns compound interest. d. Premiums are paid with pre-tax dollars.

Premiums are paid with dollars that have already been taxed; therefore, premiums are funded with after-tax dollars. The correct answer is: Premiums are paid with pre-tax dollars.

Which of the following in not an annuities classification that fits into the structure and design of an annuity? a. Funding method b. Date income payments begin c. Law of large numbers d. Investment configuration

The Law of Large Numbers is not a classification that is part of the structure and design of an annuity. The correct answer is: Law of large numbers

Which annuity does not provide guaranteed income for life, but provides income payments for a fixed period of time? a. Period Certain Option b. Installment refund c. Life annuity with period certain d. Straight life

The Period Certain Option provides annuity payments for a specific period of time. Once the period ends, annuity payments cease. The correct answer is: Period Certain Option

The phase during which premiums are paid into the annuity is the: a. Annuity phase b. Accumulation phase c. Annuitization phase d. Payout period phase

The accumulation phase is the pay-in period, during which premiums are paid into the annuity. The correct answer is: Accumulation phase

All of the following are factors that determine the annuity payout amount, EXCEPT: a. Annuity cash accumulation b. Loading c. Annuitant's marital status d. Annuitant's age

The annuitant's marital status is not a factor used to determine the amount of annuity payout. Factors that affect the amount are: total annuity cash accumulation; payout guarantees (if any); annuity payment frequency; loading; assumed interest rate; and the annuitant's age and sex. The correct answer is: Annuitant's marital status

Which of the following is not a factor used to determine the annuity payout amount? a. Any payout guarantees b. Annuitant's age c. Annuitant's sex d. Annuitant's sexual orientation

The annuitant's sexual orientation is not a factor used to determine the amount of the annuity payout. Factors that affect the amount are: total annuity cash accumulation; payout guarantees (if any); annuity payment frequency; loading; assumed interest rate; and the annuitant's age and sex. The correct answer is: Annuitant's sexual orientation

The person who owns the annuity and pays the premiums is the: a. Contract owner b. Annuitant c. Beneficiary d. Annuity

The contract owner is the person who purchases the annuity, pays the premiums, and has rights of ownership. The correct answer is: Contract owner

During the accumulation period, how does the number of accumulation units affect a variable annuity contract owner? a. It is an indication of the portion of the separate account owned by the contract owner. b. It is an indication of the number of annuity units owned. c. It is an indication of fixed premiums paid. d. It is an indication of the annuitization date.

The number of accumulation units a contract owner has directly correlates to what portion of the separate account the contract owner owns. The correct answer is: It is an indication of the portion of the separate account owned by the contract owner.

ABC Insurer sells a $500,000 single premium immediate annuity to four different people. Who receives the largest check? a. 18-year old female b. 25-year old male c. 60-year old female d. 60-year old male

The person with the shortest life expectancy will receive the highest annuity check. The correct answer is: 60-year old male

What portion of an annuity's death benefit is taxed? a. The portion that exceeds the cost-basis b. The premiums plus interest c. The premiums d. Death benefits are never taxed.

The portion of the annuity death benefit that is taxed is the amount that exceeds the cost-basis (premiums accumulated during the pay-in period). The correct answer is: The portion that exceeds the cost-basis

Charlie is single and retired from his job as a physics professor at the age of 75. Charlie does not have any dependent family members. Which annuity will provide Charlie with the largest monthly income? a. Joint life annuity b. Refund life annuity c. Straight life annuity d. All of the above

The straight life annuity provides the largest amount of periodic income because it does not have any _guarantees._ The correct answer is: Straight life annuity

Nick is single and retired at the age of 55. He does not have any dependent family members. Nick wants to purchase an annuity that will give him the largest monthly income. What annuity would you recommend to him? a. Straight life annuity b. Life annuity with period certain c. Refund life annuity d. Joint and survivor life annuity

The straight life annuity provides the largest amount of periodic income because it does not have any _guarantees._ The correct answer is: Straight life annuity

Of the following, who will receive the largest monthly annuity benefit from a $100,000 single premium immediate annuity with 5-year period certain: Jane, age 40; Paul, age 40; or William, age 70? a. Paul b. Jane c. William d. Each receives the same amount

With a period certain annuity payout option, the monthly periodic benefit is based on the amount of the annuity upon annuitization and the length of the period certain. The annuitant's age and sex are not factors. The correct answer is: Each receives the same amount

Section 1: Annuities Overview

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Section 2: Annuities - Structure, Design

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Section 3: Classification - Annuities

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Section 4: Uses of Annuities & Nonforfeit

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Of the following annuities, which provides a guaranteed minimum interest rate? a. Fixed annuity b. Variable annuity c. SPIA d. SPDA

A fixed annuity has a guaranteed minimum interest rate. The correct answer is: Fixed annuity

Which annuity provides a guaranteed minimum rate of return? a. Single premium immediate annuity b. Single premium deferred annuity c. Fixed annuity d. Variable annuity

A fixed annuity has a guaranteed minimum interest rate. The correct answer is: Fixed annuity

Which of the following annuity payout options pays benefits to two annuitants, where payments will be made to the surviving annuitant for life upon the first annuitant's death? a. Joint and survivor b. Period certain c. Straight life d. None of the above

A joint and survivor annuity payout option pays annuity benefits to two annuitants. If either of the two annuitants dies, payments will be made to the surviving annuitant for life. Payments stop upon the death of the surviving annuitant. The correct answer is: Joint and survivor

For which of the following annuities must a surrender fee be paid if the interest rate has increased, and the annuity is surrendered before it is annuitized? a. Equity indexed annuity b. Fixed annuity c. Variable annuity d. Market value adjusted annuity

A market value adjusted annuity stipulates that the annuity will incur a surrender charge if the contract is surrendered prior to annuitization. Contracts earning higher rates will require the contract owner to pay a surrender charge because the insurer is losing income on a profitable contract. The correct answer is: Market value adjusted annuity

If this annuity is surrendered prior to annuitization, the contract owner must pay a surrender fee if the interest rate has increased: a. Market value adjusted annuity b. Equity indexed annuity c. Fixed annuity d. FPDA

A market value adjusted annuity stipulates that the annuity will incur a surrender charge if the contract is surrendered prior to annuitization. Contracts earning higher rates will require the contract owner to pay a surrender charge because the insurer is losing income on a profitable contract. The correct answer is: Market value adjusted annuity

A penalty imposed by the insurer if a contract owner partially or entirely surrenders a deferred prior to annuitization is called a: a. Payout option b. Withdrawal charge c. Funding method d. Nonforfeiture option

A penalty imposed by the insurer if a contract owner partially or entirely surrenders a deferred prior to annuitization is called a withdrawal or surrender charge. The correct answer is: Withdrawal charge

What type of premium is used to purchase an immediate annuity? a. Single b. Flexible c. Level d. Increasing

A single premium is used to purchase an immediate annuity. The correct answer is: Single

Bertran, a 30-year old convenience store clerk, wants to buy an annuity to plan for his retirement. Bertran is concerned about the buying power of the dollar in future years, and wants to be sure the annuity he buys keeps up with inflation. What annuity would you recommend to him? a. Flexible Premium Variable Annuity b. Flexible Premium Deferred Annuity c. SPDA d. SPIA

A variable annuity is the best choice to keep up with inflation because the interest rate may increase above fixed-interest levels, allowing for greater growth than a fixed-interest rate annuity. The correct answer is: Flexible Premium Variable Annuity

Pete's Plant Company purchases an annuity for its key employee. Which of the following statements is true? a. Pete's Plant Company is the annuitant and contract owner. b. Pete's Plant Company is the contract owner and the key employee is the annuitant. c. The key employee is the contract owner and annuitant. d. Pete's Plant Company is the annuitant and the key employee is the contract owner.

An annuity may be owned by a corporation with an employee as the annuitant. The annuitant must always be a natural person, but the contract owner can be any legal entity or a natural person. The correct answer is: Pete's Plant Company is the contract owner and the key employee is the annuitant.

Which of the following fixed annuities has a minimum rate of return and a current rate of return that is connected to the S&P 500? a. Fixed annuity b. Market value adjusted annuity c. FPDA d. Equity indexed annuity

An equity indexed annuity will earn a guaranteed minimum interest rate up to a current interest rate that is tied to an equity index, such as the S&P 500. The correct answer is: Equity indexed annuity

An insurer's general account is: a. Used to invest premiums for variable insurance products and variable annuities b. Used to invest premiums for fixed annuities c. Characterized by high risk investments d. Characterized by high yield interest rates

An insurer's general account is used to invest premiums for fixed insurance products and annuities. It is comprised of conservative assets such as bonds, with conservative yields. The correct answer is: Used to invest premiums for fixed annuities

How do annuities provide guaranteed income for life? a. By systematically liquidating an estate b. By paying monthly disability income benefits c. By paying a lump-sum death benefit d. None of the above

Annuities protect against the risk of living too long by systematically liquidating an estate, this means a sum of money is periodically paid out to the annuitant. The correct answer is: By systematically liquidating an estate

Annuities protect against: a. The risk of prolonged life b. The risk of premature death c. The risk of accident or sickness d. The risk of disability

Annuities protect against the risk of prolonged life. The correct answer is: The risk of prolonged life

Which of the following is the best definition of an annuity? a. Death protection b. Cash supplement c. Systematic liquidation of an estate d. Savings account

Annuities provide guaranteed income for life by systematically liquidating the sum of money that has accumulated in the annuity. The correct answer is: Systematic liquidation of an estate

Annuities are defined as: a. The creation of an estate b. The systematic liquidation of an estate c. Income replacement d. A plan to pay medical expenses

Annuities provide guaranteed income for life by systematically liquidating the sum of money that has accumulated in the annuity. The correct answer is: The systematic liquidation of an estate

All of the following statements are true regarding the annuity phase of an annuity, EXCEPT: a. Annuitization happens after the accumulation period and right before the annuity period. b. Upon annuitization, the annuity's total cash value is converted into income payments. c. Annuity payments are made monthly, quarterly, semiannually or annually. d. Each annuity payment is comprised of principal only.

Annuity payments are comprised of principal and interest. The correct answer is: Each annuity payment is comprised of principal only.

All of the following are true of the life with period certain annuity payout option, EXCEPT: a. The annuitant is provided with guaranteed income for life. b. Payments are guaranteed for a minimum number of years. c. Any balance in the annuity fund after the period certain ends is refunded to a beneficiary. d. The life with period certain option does not guarantee the full value of the annuity will be paid out.

Any balance in the annuity fund after the period certain ends, is retained by the insurer. The correct answer is: Any balance in the annuity fund after the period certain ends is refunded to a beneficiary.

Collin buys a fixed deferred annuity. Upon annuitization, he chooses the life annuity with period certain payout option. Collin will receive $3,000 each month with a 15-year certain period. If Collin dies after seven years, how much will his beneficiary receive? a. $0 b. $252,000 c. $288,000 d. $540,000

Collin's beneficiary will receive eight years worth of $3,000 monthly annuity payments. This works out to $288,000 (15 _ 7 = 8 years remaining in the period certain. $3,000 _ 12 months per year = $36,000. $36,000 _ 8 = $288,000). The correct answer is: $288,000

What is the term attributed to the balance of a deferred annuity paid to a beneficiary if the annuitant dies during the accumulation phase of a deferred annuity? a. Nonforfeiture options b. Surrender charges c. Death benefits d. Annuitization

Death benefits are paid to the beneficiary if the annuitant dies during the accumulation phase of a deferred annuity. The total premiums paid or the cash value, whichever is greater, will be paid to the beneficiary. If no beneficiary has been named, then the annuitant's estate will receive the benefit. Although sometimes referred to as a death benefit, this is not a true death benefit in the sense of life insurance because the interest earned on the premium is taxable; whereas, in life insurance the death benefit is not taxable. The correct answer is: Death benefits

All of the following are true regarding deferred annuities, EXCEPT: a. Deferred annuities have a payout period that begins after one year, or after many years from the annuity's purchase date. b. Deferred annuities must be purchased with multiple premium payments. c. During the accumulation period, the principal earns compound interest on a tax deferred basis. d. Deferred annuities are frequently used to build retirement funds.

Deferred annuities can be purchased with a single premium or with multiple premiums. The correct answer is: Deferred annuities must be purchased with multiple premium payments.

During the annuity phase of a variable annuity, how does the number of annuity units affect a variable annuity contract owner? a. It determines the contract owner's dollar value investment in the separate account. b. It determines the contract owner's dollar value investment in the general account. c. It determines the contract owner's fixed annuity payment amount. d. It determines the contract owner's fixed premiums.

During the annuity phase, annuity units are used in lieu of accumulation units to determine the amount of each annuity payment. Annuity payments are not fixed, and vary based on the value of each annuity unit from day to day. The number of annuity units is fixed and is based on the contract's dollar value investment in the separate account, and how much the first annuity payment will be. The correct answer is: It determines the contract owner's dollar value investment in the separate account.

What accounting unit is used during the annuity phase of a variable annuity? a. Accumulation unit b. Annuity unit c. Premium unit d. Contract unit

During the annuity phase, annuity units are used in lieu of accumulation units to determine the amount of each annuity payment. The number of annuity units is fixed and is based on the contract's dollar value investment in the separate account, and how much the first annuity payment will be. The correct answer is: Annuity unit

Which of the following best describes equity indexed annuities? a. Earn a guaranteed minimum rate of return b. Earn a guaranteed minimum rate of return or a current interest rate which is linked to the S&P 500 c. Are variable annuities with an interest rate tied to the S&P 500 d. Are neither fixed nor variable annuities

Equity indexed annuities are fixed annuities with a guaranteed minimum interest rate, and a current interest rate that is tied to the S&P 500 index. The correct answer is: Earn a guaranteed minimum rate of return or a current interest rate which is linked to the S&P 500

Which of the following statements regarding the amount of each annuity payment is true? a. The younger the annuitant is, the higher the annuity payment. b. Fixed annuities have variable annuity payments. c. Variable annuities have fixed annuity payments. d. Women typically receive lower annuity payments

Fixed annuities (annuities with a fixed interest rate) pay fixed annuity payments, and variable annuities pay variable annuity payments. The older the annuitant is, the more likely the annuitant is to die, so the higher the annuity payment. This is the reverse logic of life insurance: the longer the annuitant is expected to live, the lower the annuity payment. Because women are expected to live longer than men, the annuity payment for women will be lower. The correct answer is: Women typically receive lower annuity payments.

Fixed annuities are characterized by all of the following, EXCEPT: a. There is a guaranteed minimum interest rate. b. The interest rate at which benefits are paid during the payout period is fixed. c. The interest rate at which premium payments grow interest during the accumulation phase is not fixed. d. Fixed annuities allow annuitants to know the exact amount of each annuity payment during the entire annuity phase.

Fixed annuities have a guaranteed minimum interest rate at which the premium payments accrue interest during the accumulation phase and a fixed interest rate at which benefits are paid during the annuity phase. Each annuity payment is fixed. Fixed annuities allow annuitants to know the precise amount of each annuity payment throughout the entire annuity phase. The correct answer is: The interest rate at which premium payments grow interest during the accumulation phase is not fixed.

Fixed annuities have: a. Variable annuity benefits b. Level annuity benefits c. Flexible annuity benefits d. Smaller annuity benefits

Fixed annuities have level annuity benefits. There are several factors that affect the amount of each annuity benefit payment, not just the interest rate. The correct answer is: Level annuity benefits

The amount of each monthly payment for a straight life annuity is based on the annuitant's: a. Age b. Sex c. Age and sex d. Age, sex, and amount of money in the annuity upon annuitization

For life annuities, the amount of each periodic payment is based on the annuitant's age and sex and the amount of money in the annuity upon annuitization. The correct answer is: Age, sex, and amount of money in the annuity upon annuitization

All of the following are true of the installment refund annuity payout option, EXCEPT: a. The annuitant is paid income for life. b. Upon the annuitant's death, the beneficiary will receive the balance of annuity funds paid in installments. c. If the annuitant lives longer than expected, depleting the principal funds in the annuity, the beneficiary will receives payments upon the annuitant's death. d. Payments are smaller than the straight life option

If the annuitant lives longer than expected, depleting the principal funds in the annuity, payments will not be made to a beneficiary upon the annuitant's death. The correct answer is: If the annuitant lives longer than expected, depleting the principal funds in the annuity, the beneficiary will receives payments upon the annuitant's death.

All of the following statements regarding annuities are true, EXCEPT: a. The more guarantees an annuity has, the lower the annuity payment. b. Life annuities provide income that an annuitant cannot outlive. c. Upon annuitization, cash value taken in one lump-sum is not taxable. d. The annuity certain does not guarantee life income.

If the cash value of an annuity is taken in one lump-sum, the interest earned on the principal is taxable. The correct answer is: Upon annuitization, cash value taken in one lump-sum is not taxable.

In which of the following types of annuities does the payment period begin immediately after the annuity is purchased? a. SPIA b. SPDA c. Deferred d. None of the above

Immediate annuities are those where the payout period begins immediately after the annuity is purchased. A single premium payment is used to purchase this kind of annuity. _SPIA_ stands for single premium immediate annuity. The correct answer is: SPIA

Immediate annuities must be purchased with: a. A single premium b. Level premiums c. Flexible premiums d. A single premium only after the annuitant reaches the age of 59

Immediate annuities must be purchased with a single premium. The correct answer is: A single premium

Which of the following annuities is characterized by flexible premium payment amounts and frequency, and an annuity period that begins 20 years after the annuity purchase date? a. SPIA b. SPDA c. FPDA d. Immediate or deferred annuity

In a flexible premium deferred annuity (FPDA), both the premium payment amount and frequency are flexible, and like all deferred annuities, the payout phase begins one year or several years after the annuity purchase date. The correct answer is: FPDA

Which of the following annuities ceases payment upon the death of the last of several annuitants? a. Straight life annuity b. Life annuity with period certain c. Refund life annuity d. Joint and survivor life annuity

In a joint and survivor life annuity, benefits are paid to two or more annuitants. Annuity payments cease upon the death of the last annuitant. The correct answer is: Joint and survivor life annuity

All of the following are characteristics of tax-sheltered annuities, EXCEPT: a. Tax-sheltered annuities are available to tax-exempt nonprofit organizations and public schools. b. The employer establishes the tax-sheltered annuity and contributions made by employees are non-taxable. c. The purpose of tax-sheltered annuities is to save money for retirement income. d. Money invested in a tax-sheltered annuity is taxable upon deposit.

Money invested in tax-sheltered annuities is taxable upon distribution, not deposit. The correct answer is: Money invested in a tax-sheltered annuity is taxable upon deposit.

The surrender nonforfeiture option for annuities is: a. Only available for immediate annuities b. Not available for deferred annuities c. An option for contract owners who want to surrender the annuity, and receive the entire amount of premiums paid into the annuity minus surrender charges and prior withdrawals d. Typically refunded to the contract owner in periodic monthly payments

Nonforfeiture options are available for deferred annuities if the contract owner chooses to surrender the annuity before the payout phase begins or to stop making premium payments. With the surrender option, the entire amount of premiums paid into the annuity, minus the surrender charges and prior withdrawals, will be refunded in a lump-sum. The correct answer is: An option for contract owners who want to surrender the annuity, and receive the entire amount of premiums paid into the annuity minus surrender charges and prior withdrawals

Nonforfeiture options are available to contract owners of all of the following, EXCEPT: a. SPDA b. SPIA c. FPDA d. Deferred annuity

Nonforfeiture options are available to contract owners of deferred annuities, SPDA and FPDA, but not SPIA. The correct answer is: SPIA

All of the following statements are correct, EXCEPT: a. With the cash refund option, the beneficiary receives the balance of premiums plus interest minus benefits paid in a lump-sum. b. All annuities have an annuity period, but may not have an accumulation period. c. The fixed period installment annuity makes periodic payments for a set period of time. d. All annuities are qualified.

Not all annuities are qualified. Some annuities are used to fund nonqualified retirement plans. The correct answer is: All annuities are qualified.

During the payout period of a variable annuity, the amount of each payment is based on: a. Accumulation units b. Annuity units c. Insurer's general account d. Death benefit

Once a variable annuity is annuitized, accumulation units are converted into a fixed number of annuity units. The value of an annuity unity varies depending on the investment experience in the separate account. The correct answer is: Annuity units

Once an annuity payout option is chosen and payments begin, the payout option: a. Can always be changed. b. Cannot be changed. c. Can be changed only if it is a variable annuity. d. Can be changed only if it is a fixed annuity.

Once selected, the payout option cannot be changed after payments begin. The correct answer is: Cannot be changed.

Premiums for a joint and survivor life annuity are based on the annuitants': a. Ages only b. Sex only c. Ages and sex d. Ages, sex and geographic location

Premiums for a joint and survivor life annuity are based on the ages and sex of the annuitants. The correct answer is: Ages and sex

Premiums from variable annuities are invested in the insurer's: a. Fixed account b. Level account c. General account d. Separate account

Premiums from variable annuities are invested in the insurer's separate account. The correct answer is: Separate account

In addition to a life insurance producer license, producers selling variable products must have a(n): a. Annuity license b. Series 6 or 7 license c. Accident and health license d. Property and casualty license

Producers selling variable products must have a securities license _ series 6 or 7 _ in addition to a life insurance producer license. The correct answer is: Series 6 or 7 license

What are straight life, cash refund, installment refund, life with period certain, and joint and survivor when pertaining to annuities. a. Payout options b. Classifications c. Nonforfeiture options d. Factors that determine payment amounts

Straight life, cash refund, installment refund, life with period certain, and joint and survivor are payout options. The correct answer is: Payout options

Which of the following is not a use of annuities? a. Tax-free income b. Education funds c. Life income d. All of the above

Tax must be paid on the interest earnings of annuities. The correct answer is: Tax-free income

Annuities have all of the following uses, EXCEPT: a. To provide life income b. To provide retirement income c. For education funds d. To provide tax-free income

Tax must be paid on the interest earnings of annuities. The correct answer is: To provide tax-free income

What is the term that refers to the period of time in which premiums are paid into an annuity? a. Annuitization phase b. Payout period c. Accumulation phase d. Annuity phase

The accumulation phase is the pay-in period, during which premiums are paid into the annuity. The correct answer is: Accumulation phase

The person who receives annuity payments is the: a. Insurer b. Contract owner c. Beneficiary d. Annuitant

The annuitant is the individual who receives annuity payments during the payout period. The correct answer is: Annuitant

What is the term given to the person receiving annuity payments? a. Receiver b. Payor c. Annuitant d. None of the above

The annuitant is the individual who receives annuity payments during the payout period. The correct answer is: Annuitant

All of the following are true of variable annuities, EXCEPT: a. Variable annuities have the potential for immense gain, but also loss. b. The investment risk is borne upon the insurance company. c. A variable annuity directly reflects investment experience. d. Contract owners decide where to invest their premiums.

The investment risk is borne upon the contract owner. The correct answer is: The investment risk is borne upon the insurance company.

All of the following are true of the straight life income option for annuities, EXCEPT: a. The straight life income option provides the largest periodic benefit. b. Payments stop upon the annuitant's death. c. A beneficiary will receive any balance of the annuity upon the annuitant's death. d. Payments consist of principal and interest.

The annuitant receives annuity payments for their entire life. Upon the annuitant's death, the annuity payments stop. The insurer retains any balance on the annuity. The correct answer is: A beneficiary will receive any balance of the annuity upon the annuitant's death.

During which annuity phase is the annuitant's age important? a. Annuity phase b. Accumulation phase c. Opt out phase d. Pay-in period phase

The annuitant's age is important in determining the amount of each annuity payment during the payout, or annuity phase. The correct answer is: Annuity phase

Many factors are taken into consideration when determining the premiums for an annuity. These factors include all but: a. Annuitant's age b. Annuitant's sex c. Annuitant's ethnicity d. Annuitant's payout amount

The annuitant's ethnicity is not a factor when determining premiums. The correct answer is: Annuitant's ethnicity

Lucas purchased an annuity for himself. He begins to receive annuity payments. If the amount of premium in the annuity has not been paid out upon his death, then his grandson will receive the balance. What type of annuity does Lucas have? a. Straight life b. Period Certain c. Cash Refund option d. Joint and survivor life

The cash refund option is an annuity that pays for the entire life of the annuitant. If the annuitant dies before the premiums in the annuity have been paid out, then a beneficiary will receive the balance. The correct answer is: Cash Refund option

What is a disadvantage of fixed annuities? a. Knowing the exact amount of each annuity payment b. Potential for higher interest earnings c. Earning potential may not be enough to offset the effects of inflation d. Investment in the insurer's separate account, which has the potential for higher yields

The downside to fixed annuities is that the earning potential may not be sufficient to offset the effects of inflation. A variable annuity can address this problem. The correct answer is: Earning potential may not be enough to offset the effects of inflation

Jenny surrenders her deferred variable annuity 10 years after making premium payments. Which of the following is true? a. Variable annuities are back-end loaded. b. Variable annuities are front-end loaded. c. Variable annuities only have a surrender fee if surrendered during the first five years. d. Variable annuities do not have surrender fees.

The insurer may charge a fee upon surrender of a variable annuity. The amount of the surrender fee is based on how long the contract was in force prior to surrender. The correct answer is: Variable annuities are back-end loaded.

Which of the following statements is true regarding the taxation of premiums and interest in annuities? a. Principal (premiums) is paid with pre-tax dollars; interest is taxable income during the payout phase. b. Principal (premiums) is paid with after-tax dollars; interest is not taxable income during the payout phase. c. Principal (premiums) is paid with pre-tax dollars; interest is not taxable income during the payout phase. d. Principal (premiums) is paid with after-tax dollars; interest is taxable income during the payout phase.

The interest portion of the payment is taxable income, but the principal portion is not taxable since it was funded with after-tax dollars. The correct answer is: Principal (premiums) is paid with after-tax dollars; interest is taxable income during the payout phase.

Annette and John are married and have an annuity in which payments will reduce to 2/3 of the original amount upon the death of the first annuitant. What annuity do they have? a. Joint life annuity b. Joint and 2/3 life annuity c. Joint and 1/2 life annuity d. Joint and survivor annuity

The joint and 2/3 life annuity will pay the full benefit amount while both annuitants are alive. Upon the death of the first annuitant, the annuity benefit will reduce to 2/3 that of the original payment amount. The correct answer is: Joint and 2/3 life annuity

Which annuity payout option guarantees income that the annuitant cannot outlive? a. Cash b. Lump-sum c. Life annuity d. Annuity certain

The life annuity payout option guarantees income that the annuitant cannot outlive. The annuity certain payout option does not guarantee life income; instead it provides income for a fixed period of time. The correct answer is: Life annuity

What are the most common uses of annuities? a. Providing temporary income b. Paying health insurance costs c. Paying life insurance premiums d. Providing lifetime income and accumulating money

The most common uses of annuities are providing lifetime income and accumulating money. The correct answer is: Providing lifetime income and accumulating money

Marty purchases an annuity for his younger brother, Jacob. If Jacob is the person who will be receiving annuity payments, which of the following statements is true? a. Marty is the contract owner and annuitant. b. Jacob is the contract owner and annuitant. c. Marty is the annuitant and Jacob is the contract owner. d. Marty is the contract owner and Jacob is the annuitant.

The person who purchases the annuity, pays the premiums and has all rights of ownership is the contract owner. In this example, Marty purchases the annuity, so he is the contract owner. The person whose life the annuity has been issued, and who will be receiving annuity payments, is the annuitant. In this example, the annuitant is Marty's brother, Jacob. The correct answer is: Marty is the contract owner and Jacob is the annuitant.

Adrian bought an annuity for herself. After a few years, she begins to receive annuity payments. When she dies, her best friend will receive the balance of principal. Which of the following annuities best describes the annuity Adrian bought? a. Refund life b. Straight life c. Joint and survivor life d. All of the above

The refund life annuity pays for the entire life of the annuitant. If the annuitant dies before the premiums in the annuity have been paid out, then a beneficiary will receive the balance. The correct answer is: Refund life

Annuities provide income the annuitant cannot outlive. What specifically is the risk that annuities protect against? a. The risk of unforeseen accident or sickness b. The risk of disability c. The risk of living too long and depleting financial resources and savings d. The risk of premature death

The risk involved with living too long is depleting financial resources and savings. The correct answer is: The risk of living too long and depleting financial resources and savings

Annuity payout options take effect: a. During the accumulation period b. After the accumulation period and before annuitization c. After the annuity phase d. Upon annuitization

The selected payout option takes effect upon annuitization. The correct answer is: Upon annuitization

How many accumulation units are in the separate account? a. 100 b. 1,000 c. 100,000 d. A set number

The separate account has a certain total number of accumulation units. The correct answer is: A set number

Jacob begins to receive periodic annuity payments. Upon Jacob's death all annuity payments cease and the balance in the annuity is retained by the insurer. What annuity does Jacob have? a. Refund life annuity b. Life annuity with period certain c. Installment refund life annuity d. Straight life

The straight life annuity pays for the entire life of the annuitant only. If the annuitant dies before the balance of the annuity is paid out, that sum is forfeited to the insurer. The correct answer is: Straight life

The two broad categories of annuities are ________ and ________ based on when the annuity phase begins. a. SPDA; SPIA b. SPIA; immediate c. Deferred; SPDA d. Immediate; deferred

The two broad types of annuities are immediate and deferred, which refer to when the annuity phase (payout period) begins. The correct answer is: Immediate; deferred

What are the two phases of an annuity? a. Income phase and payout phase b. Pay-in phase and payout phase c. Accumulation phase and pay-in phase d. None of the above

The two phases of an annuity are the pay-in period and the payout period. The pay-in period is termed the accumulation phase. The payout phase is termed the, annuity phase. The correct answer is: Pay-in phase and payout phase

What are the two types of refund life annuity payout options? a. Single life and multiple lives b. Cash refund and installment refund c. Life annuity with period certain and straight life d. Fixed period installment and fixed amount installment

The two types of refund life annuity payout options are cash refund and installment refund. The correct answer is: Cash refund and installment refund

The value of each accumulation unit varies: a. Daily b. Monthly c. Semiannually d. Annually

The value of each accumulation unit varies daily. The correct answer is: Daily

Which of the following is not a payout option that pays the annuitant for life? a. Period certain option b. Cash refund c. Installment refund d. Life annuity with period certain

Unlike a life annuity, the period certain option does not guarantee income for life. Instead, it provides income for a fixed time period, such as 10 or 15 years. The correct answer is: Period certain option

What is the term describing when the annuity's total cash value is converted into income payments? a. Accumulation phase b. Annuity phase c. Annuitization d. Pay-in period

Upon annuitization, the annuity's total cash value is converted into income payments. The correct answer is: Annuitization

For which of the following annuities must an agent have a securities license in order to sell? a. Variable annuity b. Equity indexed annuity c. SPDA d. Fixed annuity

Variable annuities are regulated as securities products. Any agent selling a variable annuity or variable life insurance policy must have a securities license in addition to a life insurance license. The correct answer is: Variable annuity

This annuity is regulated as a securities product and agents selling this product must have a securities license: a. SPDA b. Equity indexed annuity c. Fixed annuity d. Variable annuity

Variable annuities are regulated as securities products. Any agent selling a variable annuity or variable life insurance policy must have a securities license in addition to a life insurance license. The correct answer is: Variable annuity

Variable annuities have: a. Variable interest rates and benefits b. Fixed interest rates and benefits c. Fixed premiums d. Level benefits

Variable annuities have variable interest rates and benefits. Because the interest rates are not guaranteed, the insurer cannot promise a certain dollar amount periodic annuity benefit. The correct answer is: Variable interest rates and benefits

What is a contract owner purchasing when they pay premiums into the separate account? \ a. Accumulation units b. Annuity units c. Premium units d. Contract units

When a contract owner pays premiums into the separate account, he or she is purchasing accumulation units. The correct answer is: Accumulation units

The cash value of Pete's annuity is invested in securities. What type of annuity does Pete have? a. Immediate b. Deferred c. Fixed d. Variable

With a variable annuity, the cash value is invested in securities. The correct answer is: Variable

Alex purchases a single premium immediate annuity on March 1. If he elects monthly annuity payments, when will he receive his first annuity payment? a. March 15th b. March 31st c. April 1st d. May 1st

With an SPIA, the first payment begins one payment period from the date the annuity was purchased. Therefore, if payments are scheduled to be made monthly, the first payment will be made one month after the annuity purchase date. The correct answer is: April 1st

Of the following, who will receive the largest monthly annuity benefit from a $100,000 single premium immediate annuity? a. Woman, age 40 b. Man, age 40 c. Woman, age 70 d. Man, age 70

Women's life expectancies are longer than men's, so men will receive higher monthly annuity benefits. People in advanced ages are closer to death, so their income benefit will be larger. Therefore, the 70-year old man will receive the largest monthly annuity benefit. The correct answer is: Man, age 70