Variable Annuities
In a variable annuity contract, the provision that guarantees the annuitant payments for life is called the: A) payment guarantee. B) mortality guarantee. C) insurance guarantee. D) expense guarantee.
B
The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? The separate account performance compared to last month's performance. The payout compared to the initial payout upon annuitization. The separate account performance compared to an assumed interest rate. The payout compared to last month's payout. A) II and IV. B) III and IV. C) I and II. D) I and III.
B
Universal variable life policies: have investment risk that is assumed by the investor. do not have a separate account. can be sold by someone with an insurance license only. are purchased primarily for their insurance features. A) I and II. B) I and IV. C) II and III. D) III and IV.
B
All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: A) defined contribution plans. B) Keogh plans. C) variable annuities. D) IRAs.
C
If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? It was a lump-sum purchase. Distribution of dividends occurs during the accumulation period. Distributions to the annuitant will fluctuate during the payout period. The investor purchased accumulation units. A) III and IV. B) II and IV. C) I and III. D) I and II.
C
If your 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized, what are the consequences of this action? A) 10% penalty plus payment of ordinary income tax on all funds withdrawn. B) 10% penalty plus payment of ordinary income tax on all funds withdrawn exceeding basis. C) Ordinary income tax on earnings exceeding basis. D) Capital gains tax on earnings exceeding basis.
C
A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. The value of the separate account is now $30,000. If the customer takes a withdrawal of $10,000, what are the tax consequences? A) Any tax due is deferred. B) Two-thirds of the withdrawal is taxable as ordinary income. C) There is no tax as the withdrawal is considered return of capital. D) The entire $10,000 is taxable as ordinary income.
D
A registered representative's (RR) customer is speaking of a variable life insurance contract he owns. He makes several statements regarding the contract. Which of the following is NOT an accurate statement concerning a variable life insurance contract? A) The portion of the premium invested in the insurance company's general account is used to provide for the minimum guaranteed amount of the death benefit. B) The policy provides a minimum guaranteed death benefit. C) There is no guarantee regarding the investment results of the separate account. D) The death benefit cannot ever be more than the guaranteed benefit.
D
A customer has a nonqualified variable annuity. Once the contract is annuitized, monthly payments to the customer are: A) 100% taxable. B) partially a tax-free return of capital and partially taxable. C) 100% tax deferred. D) 100% tax free.
B
A customer has an investment objective of keeping pace with inflation while assuming moderate risk. Which of the following recommendations would best meet the customer profile? A) Universal variable life policy. B) Variable annuity. C) Money market fund. D) IPO.
B
If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? A) Investment risk. B) Purchasing power risk. C) Mortality risk. D) Value of each annuity unit each month.
B
Changes in payments on a variable annuity correspond most closely to fluctuations in the: A) prime rate. B) Dow Jones Industrial Average. C) cost of living. D) value of underlying securities held in the separate account.
D
Distributions from nonqualified variable annuities are: A) tax free. B) taxed at a reduced rate. C) taxed as ordinary income. D) taxed as ordinary income only to the extent of earnings.
D
If the owner of a variable annuity dies during the accumulation period, any death benefit will: A) be paid to a designated beneficiary. B) be returned to the separate account. C) be paid to the issuing company to complete the plan. D) be paid to the IRS.
A
A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. How is the distribution taxed? The entire amount is taxed as ordinary income. The growth portion is taxed as ordinary income. The growth portion is taxed as a capital gain. The growth portion is subject to a 10% penalty. A) II and IV. B) II and III. C) I and IV. D) III and IV.
A
A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as A) waiver of premium B) life income C) annuity phase D) minimum guaranteed death benefit
A
Variable annuity salespeople must register with all of the following EXCEPT: A) the SEC. B) the state insurance department. C) the state banking commission. D) FINRA.
C
An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. Her intent was to use the funds for the down payment on a house after graduation. Her agent recommended she choose a variable annuity as a safe haven for the funds. This recommendation is: A) unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. B) suitable due to the relative safety of the investment. C) suitable due to the death benefit features of a variable annuity. D) unsuitable because the return on something as conservative as a variable annuity tends to be low.
A
If a 42-year-old customer has been depositing money in a variable annuity for 5 years, and he plans to stop investing but has no intention of withdrawing any funds for at least 20 years, he is holding: A) annuity units. B) mutual fund units. C) accumulation shares. D) accumulation units.
D
If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? She will receive the annuity's entire value in a lump-sum payment. She may choose to receive monthly payments for the rest of her life. The accumulation unit's value is used to calculate the total value of the account. The annuity unit's value represents a guaranteed return. A) I and III. B) II and IV. C) I and IV. D) II and III.
D
Once a customer annuitizes a variable annuity, which of the following statements are TRUE? The number of annuity units is fixed. The number of annuity units varies. The value of the annuity units is fixed. The value of the annuity units varies. A) I and III. B) II and IV. C) II and III. D) I and IV.
D
Your 55-year-old client owns a nonqualified variable annuity. He originally invested $50,000 four years ago. The annuity has grown to value of $60,000. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? A) 3000. B) 4500. C) 0. D) 4000.
D
For an insurance company, mortality risk turns out unfavorably if: an annuitant lives longer than expected. an annuitant dies sooner than expected. a life insurance holder lives longer than expected. a life insurance holder dies sooner than expected. A) I and IV. B) I and III. C) II and III. D) II and IV.
A
A joint-and-last-survivor annuity is a payout option where: A) payments continue for a pre-determined period of time. B) payments continue until the death of the primary owner. C) two people are covered and payments continue until the second death. D) payments continue until age 70-½.
C
A prospectus for a variable annuity contract: must provide full and fair disclosure. is required by the Securities Act of 1933. must be filed with FINRA. must precede every sales presentation. A) I and III. B) III and IV. C) II and IV. D) I and II.
D
Once a variable annuity has been annuitized: A) each annuity unit's value is fixed, but the number of annuity units varies with time. B) each annuity unit's value and the number of annuity units vary with time. C) each annuity unit's value varies with time, but the number of annuity units is fixed. D) the number of annuity units is fixed, and their value remains fixed.
C
When a customer purchases a variable annuity, the broker/dealer must forward the application and the check: A) within 10 business days. B) within 30 days. C) within 1 week. D) promptly.
D
When may a variable annuity account be surrendered? A) Only during the payout period. B) During the annuity period. C) Any time before the accumulation period. D) During the accumulation period.
D
Your 65-year-old client owns a nonqualified variable annuity. He originally invested $29,000 4 years ago; it now has a value of $39,000. If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? A) 3800. B) 0. C) 4200. D) 2800.
D
John is the annuitant in a variable plan, and Sue is the beneficiary. Upon John's death during the accumulation period, Sue takes a lump-sum payment. What is her total tax liability? A) None, because it is the proceeds from a life insurance company. B) The ordinary income on the proceeds over the cost basis plus 10% of the net gain (if any) if Sue is younger than 59-½ years old. C) The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. D) The entire amount is taxed as ordinary income, because it is not life insurance.
C
Variable annuities must be registered with: I. the state banking commission. II. the state insurance commission. III. the SEC. IV. FINRA. A) II and III. B) I and III. C) III and IV. D) II and IV.
A
A joint life with last survivor annuity: covers more than one person. continues payments as long as one annuitant is alive. continues payments as long as all annuitants are alive. guarantees payments for a certain period of time. A) II and IV. B) I and II. C) III and IV. D) I and III.
B
All of the following represent rights of investors who bought variable annuity units EXCEPT? A) The right to vote on proposed changes in investment policy. B) The right to approve changes in the portfolio. C) The right to vote for the investment adviser. D) The right to reduced sales charges for large dollar purchases.
B
A registered representative explaining variable annuities to a customer would be CORRECT in stating that: a variable annuity guarantees an earnings rate of return. a variable annuity does not guarantee an earnings rate of return. a variable annuity guarantees payments for life. a variable annuity does not guarantee payments for life. A) II and III. B) II and IV. C) I and III. D) I and IV.
A
A variable annuity separate account will invest in a number of different securities. The separate account is NOT likely to invest in: A) municipal bonds. B) money market funds. C) equity funds. D) corporate stock.
A
All of the following statements regarding variable annuities are true EXCEPT: A) variable annuities may only be sold by registered representatives. B) variable annuities are classified as insurance products. C) insurance companies keep variable annuity funds in separate accounts from other insurance products. D) variable annuities offer the investor protection against capital loss.
D
An annuity may be purchased under all of the following methods EXCEPT: A) single payment immediate annuity. B) single payment deferred annuity. C) periodic payment deferred annuity. D) periodic payment immediate annuity.
D
All of the following statements about variable annuities are true EXCEPT: A) a minimum rate of return is guaranteed. B) the rate of return is determined by the underlying portfolio's value. C) such an annuity is designed to combat inflation risk. D) the number of annuity units becomes fixed when the contract is annuitized.
A
For a retired person, which of the following investments would provide the greatest protection against inflation? A) Fixed annuities. B) Corporate bonds. C) Municipal bonds. D) Variable annuities.
D
Which of the following statements regarding variable annuities are TRUE? The number of accumulation units is always fixed throughout the accumulation period. The number of accumulation units can rise during the accumulation period. The number of annuity units is fixed at the time of annuitization. The number of annuity units rises once annuitization begins. A) I and IV. B) II and IV. C) I and III. D) II and III.
D
Which of the following are defined as securities? Fixed annuities. Variable Annuities. Options. CDs insured by the FDIC. A) I and III. B) II and III. C) I and IV. D) II and IV.
B
In a variable life annuity with 10-year period certain, a contract holder receives: A) variable payments for 10 years, followed by fixed payments for life. B) 10 years of variable payments. C) a minimum of 10 years of variable payments, followed by additional variable payments for life. D) fixed payments for 10 years, followed by variable payments for life.
C
Your client owns a variable annuity contract with an AIR of 4%. In March, the actual net return to the separate account was 8%. If this client is in the payout phase, how would his April payment compare to his March payment? A) It will stay the same. B) It will be lower. C) It will be higher. D) It cannot be determined until the April return is calculated.
C
A variable annuity's separate account is: used for the investment of funds paid by contract holders. used to escrow late or otherwise delinquent premium payments. required to be located off of the company's premises. regulated under both securities and insurance laws. A) I and IV. B) II and IV. C) I and III. D) II and III.
A
For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? A) The fact that the annuity payment may increase or decrease. B) The fact that periodic payments into the contract may increase or decrease. C) The investor's concerns about taxes. D) The investor's marital status.
A
The holder of a variable annuity receives the largest monthly payments under which of the following payout options? A) Life annuity. B) Joint and last survivor annuity. C) Life annuity with period certain. D) Joint tenants annuity.
A
Who assumes the investment risk in a variable annuity contract? A) The policyowner. B) There is no risk in a variable annuity. C) The insurance company. D) The investment risk is shared between the insurance company and the policyowner.
A
A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client? A) A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. B) A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. C) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. D) Capital gains taxation on the earnings withdrawn in excess of the owner's basis.
C
A registered person recommends the purchase of a variable annuity to one of his clients. He must ensure that the client, in addition to meeting suitability requirements, is aware of all of the following EXCEPT: A) a variable annuity contract will provide a fluctuating monthly check upon the annuitization of the contract. B) a variable annuity contract does not guarantee any type of return. C) a variable annuity contract is not required to be sold by prospectus because it is an insurance contract. D) a variable annuity contract is subject to fluctuating values due to market fluctuations of the underlying separate accounts.
C
All of the following statements concerning a variable annuity are correct EXCEPT: A) separate account may consist of mutual funds. B) a majority vote from the shareholders is required to change the investment objectives. C) variable annuities will protect an investor against capital loss. D) the invested money will be professionally managed according to the issuers' investment objectives.
C
An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: A) the safety of the principal invested. B) the yield is always higher than bond yields. C) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. D) the yield is always higher than mortgage yields.
C
An investor owning which of the following variable annuity contracts would hold accumulation units? Periodic payment deferred annuity. Single payment deferred annuity. Immediate life annuity. Immediate life annuity with 10-year period certain. A) I and III. B) II and III. C) I and II. D) II and IV.
C
An investor who has purchased a nonqualified variable annuity has the right to: vote on proposed changes in investment policy. approve changes in the plan portfolio. vote for the investment adviser. withdraw funds without any tax consequences. A) II and IV. B) II and III. C) I and III. D) I and IV.
C
If a customer is about to buy a variable annuity contract and wants to select an annuity with a payout option providing the largest possible monthly payment, which of the following payout options would be most suitable? A) Unit refund life option. B) Life annuity with period certain . C) Life-only annuity. D) Life annuity with 10-year period certain.
C
