7/2 Quiz: Annuities - Structure, Design, Funding, Premiums, Payments
Of the following types of premiums, which is used to buy an immediate annuity?
A single premium is used to purchase an immediate annuity. The correct answer is: Single
Which of the following is not true about the impact of the annuitant's sex on the premium payments?
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.
Alex purchases a single premium immediate annuity on March 1. If he elects monthly annuity payments, when will he receive his first annuity payment?
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
A penalty imposed by the insurer if a contract owner partially or entirely surrenders a deferred prior to annuitization is called a:
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
Which annuity payout option has a distinct beginning and ending?
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
What type of premium is used to purchase an immediate annuity?
A single premium is used to purchase an immediate annuity. The correct answer is: Single
All of the following are true of the life with period certain annuity payout option, EXCEPT:
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?
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
All of the following statements regarding the taxation and interest of deferred annuities are true, EXCEPT:
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.
Which of the following statements regarding the amount of each annuity payment is true?
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.
The amount of each monthly payment for a straight life annuity is based on the annuitant's:
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
Premiums for a joint and survivor life annuity are based on the annuitants':
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
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?
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
Annuity payout options take effect:
The selected payout option takes effect upon annuitization. The correct answer is: Upon annuitization
The two broad categories of annuities are ________ and ________ based on when the annuity phase begins.
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
This annuity does not guarantee a life income, but pays a specific amount to the annuitant periodically:
With a fixed amount installment annuity, the length of the annuity period is based on the size of the monthly payment. The correct answer is: Fixed amount installment annuity
All of the following are true of the installment refund annuity payout option, EXCEPT:
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.
Which annuity does not provide guaranteed income for life, but provides income payments for a fixed period of time?
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
All of the following are true of the straight life income option for annuities, EXCEPT:
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?
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:
The annuitant's ethnicity is not a factor when determining premiums. The correct answer is: Annuitant's ethnicity
All of the following are factors that determine the annuity payout amount, EXCEPT:
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
What are the two types of refund life annuity payout options?
The two types of refund life annuity payout options are cash refund and installment refund. The correct answer is: Cash refund and installment refund
Which annuity payout option guarantees income that the annuitant cannot outlive?
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
ABC Insurer sells a $500,000 single premium immediate annuity to four different people. Who receives the largest check?
The person with the shortest life expectancy will receive the highest annuity check. The correct answer is: 60-year old male
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?
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
All of the following are true regarding deferred annuities, EXCEPT:
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.
In which of the following types of annuities does the payment period begin immediately after the annuity is purchased?
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:
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?
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
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?
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
Once an annuity payout option is chosen and payments begin, the payout option:
Once selected, the payout option cannot be changed after payments begin. The correct answer is: Cannot be changed.
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?
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?
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
Of the following annuities, for which do the annuity payments cease when the last of several annuitants dies?
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 annuities ceases payment upon the death of the last of several annuitants?
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 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 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
What are straight life, cash refund, installment refund, life with period certain, and joint and survivor when pertaining to annuities.
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 in not an annuities classification that fits into the structure and design of an annuity?
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 of the following is not a factor used to determine the annuity payout amount?
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
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?
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
Which of the following is not a life annuity payout option?
The fixed amount installment option is a type of annuity certain. With the fixed amount installment, a stipulated amount is paid to the annuitant periodically. The contract owner decides how much each payment will be, and the insurer determines how long payments will last based on the value of the annuity and assumed interest rate. Payments stop when the funds are depleted. The correct answer is: Fixed amount installment
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?
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
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?
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?
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