Unit 9 - Annuities Quiz

Life Annuity

Payable during the continued life of the annuitant. No provision is made for the guaranteed return of the unused portion of the premium.

accumulation unit

Premiums an annuitant pays into a variable annuity are credited as accumulation units. At the end of the accumulation period, accumulation units are converted to annuity units.

Beneficiary

Can be a natural person or an entity like a trust/corporation. Receives the accumulation value if owners dies.

Define CONTRACT OWNER

This is the person/couple who buy the annuity and has certain rights.

Accumulation Period allows owner to: - make additional premium payments/deposits - take withdrawals from the accumulated value - surrender the annuity for its cash value - make other changes to contract

True

Annuitization Period the accumulated value no longer belongs to annuity owner: - no additional premium payments can be made - no withdrawals can be taken - the annuity cant be surrendered the owner cant change the contract

True

Insurer

Party who issues the annuity contract

Define Annuity

a contract that provides a stipulated sum payable at a certain regular intervals during the lifetime of one or more persons, or payable for a specified period only

prospectus

a document containing a detailed description of the product being offered

equity-indexed annuity (EIA)

a fixed deferred annuity that offers the traditional guaranteed minimum interest rate and an excess interest feature that is based on the performance of an external equities market index

payment guarantee

a refund option will lower the payment; with a period certain option, the longer the period, the lower the payment

Tracey is paying money into an annuity she hopes will support her in her retirement years. Her contract currently is in which of the following periods? a. accumulation period b. nonforfeiture period c. payout period d. annuity period

a. accumulation period

Which of the following is not a type of annuity product? a. fixed b. variable c. retirement d. equity-indexed

c. retirement

Define Premiums

The money paid into the annuity

Contact Owners rights are

- name or change beneficiary/annuitant -choose payout opt - add more money or take withdrawal - can end the contract

What 4 parties are involved in an annuity contract?

1. Contract Owner 2. Annuitant 3. Beneficiary 4. Insurer

The ANNUITANT is chosen by the _________ to receive the income payments during the ___________ period.

1. Owner 2. Annuitization period

What are the 2 phases an annuity can have? 1.___________________ 2.__________________

1. Pay in / accumulation 2. Pay out / Annuitization

1. Define Annuitization Period 1a. Money is converted into a series of ______________ payments that can continue for life/a stated period of time

1. This is the the "pay-out" phase of the contract 1a. Regular income payments

individual retirement account (IRA)

A personal qualified retirement account through which eligible individuals accumulate tax-deferred income up to a certain amount each year, depending on the person's tax bracket.

single premium immediate annuity (SPIA)

An immediate annuity which is purchased with a single premium.

joint and survivor annuity

Covers two or more lives and continues in force so long as any one of them survives.

immediate annuity

Provides for payment of annuity benefit at one payment interval from date of purchase. Can only be purchased with a single payment.

deferred annuity

Provides for postponement of the commencement of an annuity until after a specified period or until the annuitant attains a specified age. May be purchased either on single-premium or flexible premium basis.

variable annuity

Similar to a traditional, fixed annuity in that retirement payments will be made periodically to the annuitants, usually over the remaining years of their lives. Under the variable annuity, there is no guarantee of the dollar amount of the payments; they fluctuate according to the value of an account invested primarily in common stocks.

annuity unit

The number of annuity units denotes the share of the funds an annuitant will receive from a variable annuity account after the accumulation period ends and benefits begin. A formula is used to convert accumulation units to annuity units.

Devon purchases an annuity that will pay a monthly income for the remainder of his life and then stop making payments. Devon has purchased: a. a fixed annuity b. a straight-life annuity c. a variable annuity d. a temporary annuity certain

b. a straight-life annuity

The period during which a person receives the annuity benefits is called the: a. accumulation period b. annuitization period c. payout period d. putting in period

b. annuitization period

All of the following are factors in determining a life annuity payout amount EXCEPT the: a. annuitant's age b. beneficiary's age c. annuitant's gender d. payment guarantee

b. beneficiary's age

Fixed period and fixed amount are types of: a. life annuities b. temporary annuities c. life-period certain annuities d. joint life annuities

b. temporary annuities

Annuities exist to: a. accumulate a sum of money b. distribute a lifetime income c. both accumulate a sum of money and distribute a lifetime income d. neither accumulate a sum of money nor distribute a lifetime income

c. both accumulate a sum of money and distribute a lifetime income

life with refund

if the annuitant dies and the total payments received are less than the amount paid for the annuity, the difference is paid to the beneficiary

assumed interest rate

the insurer assumes that it will earn some rate of interest on the funds used to buy the annuity; the lower the assumed interest rate, the lower the payment

annuitant's age

used to determine life expectancy, which indicates how long payments will have to be made (the younger, the lower the payment amount)

dual regulation

variable annuities are regulated as insurance products and are also regulated as securities

1. Define Accumulation Period 1a. Who issues these contracts? 1b. Annuity value belongs to who?

1. This is when an annuity is being funded, before a payout begins a. Life Insurance Companies b. to the owner

fixed annuity

A type of annuity that provides a guaranteed fixed benefit amount, payable for the life of the annuitant

All of the following statements about annuities benefits vs. life insurance benefits are correct EXPECT: a. annuities can be used to liquidate an estate b. annuities protect against living too long c. annuities protect against dying too soon d. annuities use a lump sum of accumulated money to guarantee income payments while living

c. annuities protect against dying too soon

Fixed annuities are support by insurers: a. personal account b. separate account c. general account d. high risk investment accounts

c. general account

life with period certain

pays an income for as long as the annuitant is alive; the annuitant selects a payment period (5,10,or 20 years) and payments are guaranteed to be made for at least that number of years; if the annuitant dies before the end of the selected period, payments continue to the beneficiary for the rest of the period certain

Michelle purchases an annuity that offers a guaranteed minimum interest rate and a guarantee against loss of principal if the contract is held to term. However, if the S&P 500 moves upward, Michelle's annuity might end up accruing more than the guaranteed minimum interest rate. Michelle has purchased: a. an equity-indexed annuity b. a market value-adjusted annuity c. a market value-indexed annuity d. an equity-adjusted annuity

a. an equity-indexed annuity

An annuity that guarantees a minimum rate of return is: a. an immediate annuity b. a deferred annuity c. a variable annuity d. a fixed annuity

d. a fixed annuity

Liz purchases an immediate annuity. The annuity contract must be: a. fixed annuity b. variable annuity c. deferred annuity d. single premium annuity

d. single premium annuity

annuitant's gender

life expectancy statistics show that as a group, women live longer than men; women generally receive lower payments than men of the same age

As a financial product, ANNUITIES can be used to: 1.______________ 2._____________ 3._____________

1. accumulate funds over a period of time 2. distribute funds over a period of time 3. both accumulate a fund and evenly distribute it over a period of time

Which type of annuity is most likely to provide death benefits if the insured dies during the accumulation period? a. fixed annuity b. variable annuity c. deferred annuity d. immediate annuity

c. deferred annuity

Which of the following types of annuities are regulated as securities? a. fixed annuities b. flexible annuities c. variable annuities d. structured annuities

c. variable annuities

life only

payments stop when the annuitant dies, regardless of when that occurs; one month of 20 years (also called a pure life income)

Under which annuity do the benefit payments begin within 12 months of the purchase? a. an immediate annuity b. a deferred annuity c. a retirement annuity d. an accumulated annuity

a. an immediate annuity

A tax favored retirement savings plan that people can set up themselves through a bank, securities firm, or insurance company is known as: a. an individual retirement account (IRA) b. a savings account c. a term insurance policy d. a whole life insurance policy

a. an individual retirement account (IRA)

Which of the following factors is NOT used to determine annuity premiums? a. annuitant's retirement date b. assumed interest rate c. income amount and payment guarantee d. applicant's sex

a. annuitant's retirement date

Which of the following types of annuities is guaranteed against loss and not tied directly to the stock market? a. fixed b. variable c. market value adjusted d. equity-indexed annuity

a. fixed

Under which of the following life annuity payout options do the payments stop when the first of two annuitants die and not continue on to the survivor? a. joint life b. joint life and survivor c. life only d. life with period certain

a. joint life

Albert has purchased an annuity that will pay him a monthly income for the rest of his life. If Albert dies before the annuity has paid back as much as he put into it, the insurance company has agreed to pay the difference to Albert's daughter. What annuity payout option did Albert select? a. straight-life annuity b. life annuity with period certain c. life with refund annuity d. temporary annuity

c. life with refund annuity