Life Insurance Chapter 5 Annuities
Your client is planning to retire. She has accumulated $100,000 in a retirement annuity, and now wants to select the benefit option that will pay the largest monthly amount for as long as she lives. As her agent, you should recommend A Joint and survivor. B Straight life. C Life income with period certain. D Installment refund.
- Straight life.- With the straight life option, the annuity payments cease at death. However, because there are no other guarantees that might incur additional charges, this option provides the highest monthly benefits for an individual annuitant.
What license or licenses are required to sell variable annuities? A No license is required B Both a life insurance license and a securities license C Only a life insurance license D Only a securities license
Both a life insurance license and a securities license - Agents are required to have both a life insurance license and a securities license to sell variable annuities.
All of the following statements are true regarding installments for a fixed amount EXCEPT A The payments will stop when the annuitant dies. B Value of the account and future earnings will determine the time period for the benefits. C This option pays a specific amount until the funds are exhausted. D The annuitant may select how big the payments will be.
The payments will stop when the annuitant dies. - Installments for a fixed amount option has no life contingencies. A specific amount of benefits will be paid until funds are exhausted whether or not the annuitant is living.
Which of the following are NOT fundable by annuities? A A person's retirement B Estate liquidation C Death benefits D Cash accumulation for any reason
Death benefits - Annuities are most commonly used to fund a person's retirement, but they can technically be used to accumulate cash for any reason. Annuities can also be used to liquidate an estate. Annuities do not provide death benefits; those are provided by life insurance.
In an annuity, the accumulated money is converted into a stream of income during which time period? A Conversion period B Annuitization period C Payment period D Amortization period
Annuitization period - The "annuitization period" (annuity period) is the time during which accumulated money is converted into an income stream. reprieves money from annuity
If the annuitant dies during the accumulation period, who will receive the annuity benefits? A The annuity owner B The insurance company C The annuitant's estate D The beneficiary
The beneficiary - If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.
Your client owns a Market Value Adjusted Annuity. In order to pay for a series of large, unexpected medical bills, he decides to surrender his policy prematurely. Which of the following will determine the penalty that the annuity owner will have to pay? A Current interest rate at the time of surrender B Flat fee determined by an index of interest gains, combined with the amount of time the annuity would take to mature C There are no penalties imposed for surrendering annuities prematurely. D Guaranteed minimum interest rate stipulated in the contract
Current interest rate at the time of surrender - If a Market Value Adjusted Annuity owner surrenders his/her policy prematurely, a penalty is imposed, the amount of which depends directly upon the current interest rates at the time of surrender. The market value adjustment is calculated as a percentage of the difference between the contracted rate of interest in the annuity and the current interest rate at the time of the annuity's surrender.
A man purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it? A Flexible B Deferred C Variable D Immediate
Immediate - With an immediate annuity, distribution starts within 1 year of purchase.
A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select? A Straight life B Joint and survivor C Joint annuity D Cash refund annuity
Joint and survivor - Under a joint settlement option, payments would stop at the first death, but under the joint and survivor, payment would continue until both recipients die. Usually, the surviving beneficiary receives 1/2 or 2/3 of the amount received when both beneficiaries were alive.
If an annuitant selects the straight life annuity settlement option, in order to receive all of the money out of the contract, it would be necessary to A Live at least to his life expectancy. B Die before his life expectancy. C Name a beneficiary. D Name another annuitant.
Live at least to his life expectancy. - A straight life annuity pays as long as the annuitant lives. The amount is based on the annuitant's life expectancy.
Annuities can be used to fund which of the following? A Variable life insurance B Group life insurance C Estate creation D Retirement plans
Retirement plans - Since annuities are a popular means to provide retirement income, they are often used to fund qualified retirement plans.
If a beneficiary is NOT named for annuity benefits, to which entity will the benefit be paid? A The insurance company B The annuitant's estate C The next of kin D The state government
The annuitant's estate - If an annuitant dies during the accumulation period, the beneficiary is paid either the cash value of the policy or the amount of premiums paid, whichever is the larger amount. If a beneficiary is not named, the money will be paid to the annuitant's estate.
Which of the following is NOT true regarding Equity Indexed Annuities? A They earn lower interest rates than fixed annuities. B The insurance company keeps a percentage of the returns. C They have guaranteed minimum interest rates. D They are less risky than variable annuities.
They earn lower interest rates than fixed annuities. - Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.
The main difference between immediate and deferred annuities is A How the annuity is purchased. B The number of insureds. C The amount of each payment. D When the income payments begin.
When the income payments begin. - The main difference between immediate and deferred annuities is when the income payments begin. Immediate annuities will begin payments within the first year, while deferred annuities will not begin payments until sometime after the first year.
The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true? A A corporation can be an annuitant as long as the beneficiary is a natural person. B The contract can be issued without an annuitant. C The annuitant must be a natural person. D A corporation can be an annuitant as long as it is also the owner.
The annuitant must be a natural person - Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.
An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin 2 years after the annuity was purchased. What type of annuity is it? A. Fixed B. Flexible premium C. Immediate D. Deferred
Deferred - Deferred annuities may be purchased with either a single lump sum or periodic payments, but they do not begin the income payments until sometime after 1 year from the date of purchase.
Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive A The remainder of the principal. B Nothing; the payments will cease. C Guaranteed minimum benefit. D The amount paid into the annuity.
Nothing; the payments will cease. - Straight or pure life annuity will pay a specific amount of income for the remainder of the annuitant's life. This payment will cease at death, regardless of the amount of principal that hasn't been paid out. There is no refund or payments to survivors.
Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income? A Annuitization period B Pay-out period C Liquidation period D Depreciation period
Depreciation period - The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period.
Which of the following will NOT be an appropriate use of a deferred annuity? A Accumulating funds in an IRA B Funding a child's college education C Creating an estate D Accumulating retirement funds
Creating an estate - Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children's college education. Unlike life insurance, annuities do not create an estate, but liquidate it.
Why is an equity indexed annuity considered to be a fixed annuity? A It has a fixed rate of return. B It is not tied to an index like the S&P 500. C It has a guaranteed minimum interest rate. D It has modest investment potential.Question 9 of 15
It has a guaranteed minimum interest rate. - While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.
The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE? A The owner's estate will receive the money paid into the annuity. B The insurance company will retain the cash value and pay back the premiums to the owner's estate. C The money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary. D The beneficiary will receive the greater of the money paid into the annuity or the cash value.
The beneficiary will receive the greater of the money paid into the annuity or the cash value. - if the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value, whichever is greater.
Which of the following can surrender a deferred annuity contract? A Only the insurance company for nonpayment of premiums B The beneficiary after the owner's death C A deferred annuity cannot be surrendered. D Only the annuity owner
Only the annuity owner - If the need arises, a deferred annuity contract may be surrendered only by the annuity owner. At surrender the owner receives the value of the annuity minus a surrender charge.
