Quiz: Immediate vs. Deferred Annuities

Which of the following annuities accepts periodic premiums of any amount (above a specified minimum) and on any frequency desired by the annuity owner? A. flexible premium deferred annuity B. retirement annuity C. fixed premium deferred annuity D. immediate annuity

A. flexible premium deferred annuity Flexible premium deferred annuities allow the owner to make premium deposits of any amount whenever he or she wants. However, a certain minimum amount may be required

Which of the following can be funded with a single premium payment, a series of fixed premium payments, or flexible premium payments? A. retirement annuities B. immediate annuities C. deferred annuities D. single-premium immediate annuities

C. deferred annuities Deferred annuities can be funded with a single premium payment, a series of fixed premium payments, or with flexible premium payments. Moreover, the owner can make these payments whenever and in whatever amount he or she wants.

What does the length of an annuity's surrender charge period depend on? A. the age of the annuitant B. the period selected by the owner when the annuity is purchased C. the contract design D. the age of the beneficiary

C. the contract design The owner has no say in the terms of the surrender charge, which is defined in the contract.

Alice's deferred annuity imposes a declining surrender charge that begins at 7 percent during the first year of the contract and declines 1 percentage point each year. What would the surrender charge rate be for a full withdrawal in the third year of the same contract? A. 6 percent B. 3 percent C. 4 percent D. 5 percent

D. 5 percent If a deferred annuity imposes a 7 percent declining surrender charge during the first year of the contract, it would be 6 percent during the second year and 5 percent during the third year. The surrender charge is typically a percentage of the contract's accumulated value and usually declines at 1 percent per year. In the eighth year, the surrender charge period ends.

Kelly owns a deferred annuity. What options does she have for using the funds accumulating in her contract before the annuitization date? A. Those values must be fully withdrawn before annuitization. B. Those values must be left intact in the contract for future annuitization. C. These values can only be partially withdrawn in an emergency before annuitization. D. They can be withdrawn, partially or in full, before the contract annuitizes.

D. They can be withdrawn, partially or in full, before the contract annuitizes. These values can be left intact in the contract for future annuitization. Or, they can be withdrawn, partially or in full, before the contract annuitizes.

Which of the following requires monthly fixed premium payments of a specified amount, produces a predetermined amount of income upon annuitization, and has traditionally been used to supplement retirement income? A. single-premium deferred annuity B. immediate annuity C. flexible premium deferred annuity D. fixed premium deferred annuity

D. fixed premium deferred annuity Also called retirement annuities, these contracts are not as popular as they once were due to the fixed premium requirement.

Which statement about deferred annuity surrender charges is correct? A. The surrender charge is usually applied to all withdrawals prior to annuitization. B. The surrender charge usually remains level. C. The insurer may extend the surrender charge period if the annuity owner makes excessive numbers of withdrawals. D. The surrender charge percentage typically decreases over the surrender charge period.

D. The surrender charge percentage typically decreases over the surrender charge period. The surrender charge generally decreases over the term of the surrender charge period, which is a set period following the contract's effective date.

When do funds in a deferred annuity become the owner's property? A. They belong to the owner only at annuitization. B. They belong to the owner only after they have accumulated for the period stated in the contract. C. They belong to the owner only after the end of the surrender charge period. D. They are nonforfeitable and always belong to the contract owner.

D. They are nonforfeitable and always belong to the contract owner. Funds in a deferred annuity always belong to the contract owner.

Which of the following distribute a sum of money regularly, starting very shortly after they are bought? A. retirement annuities B. deferred annuities C. life insurance D. immediate annuities

D. immediate annuities Immediate annuities distribute a sum of money regularly, starting very shortly after they are bought.

Deferred annuities accumulate funds for future distribution. Under what circumstances are these funds forfeitable to the insurer? A. only if the owner stops paying premiums B. under no circumstances C. only at the annuitant's death, if it occurs before the annuity starting date D. only if the contract is surrendered during the surrender charge period

B. under no circumstances Accumulated funds in a deferred annuity always belong to the owner. They are not forfeitable, even if the owner stops making premium payments.

Which of the following distributes income payments over time beginning soon after purchase and can be funded only with a single lump-sum premium payment? A. flexible premium immediate annuity B. fixed premium deferred annuity C. single premium immediate annuity D. single premium deferred annuity

C. single premium immediate annuity SPIAs can only be bought with a single lump-sum premium payment. They then regularly distribute a given sum of money over time soon after purchase.

What is the purpose of the bailout provision of a deferred annuity contract? A. Permit the owner to annuitize the contract prior to the scheduled annuitization date. B. Permit the owner to cancel the contract for a full refund of premiums paid, minus any surrender charges, if he or she is unhappy with the contract. C. Permit the insurer to terminate annuity income payments if the annuitant lives past his or her life expectancy. D. Permit the owner to withdraw funds at any time, without a surrender charge, if the interest rate falls below a specified level.

D. Permit the owner to withdraw funds at any time, without a surrender charge, if the interest rate falls below a specified level. Also called a waiver of penalties provision, the bailout provision allows charge-free withdrawals if the interest rate credited to the accumulated value drops below a specified level.