Annuities
There are two basic types of annuities - immediate and deferred. Which of the following is not a true statement about deferred annuities?
A deferred annuity payout period must begin within 12 months of purchase.
Rich wants to have income for life and he also wants his wife Pam to continue to receive income for the rest of her life upon his death. Which of the following should Rich choose?
A joint and survivor annuity
What kind of annuity promises two annuitants full income for both their lifetimes?
A joint and survivor life annuity
Jacob wants to receive income for the rest of his life. He wants his daughter to continue to receive the income for her life - after he dies. Which of the following should Jacob choose?
Joint and survivor
Variable annuity withdrawals are taxed on what basis?
LIFO
Max is leaving his current employer for a new position. He has accumulated a tidy sum in his 401 (k) plan. What is his best option to maintain control over his account?
Max should have his funds transferred directly to a new trustee without taking possession of the funds.
Variable annuities have all of the following features EXCEPT:
Money can be withdrawn at any time without penalty.
In a variable annuity, who is responsible for regulating the separate account?
SEC
Carla has invested in an annuity to have money at retirement. What factors will determine the amount that Carla will receive at retirement?
The interest rate The total capital The payout option selected
George has a fixed annuity. How does the change in interest rates during the annuity period caused by increased interest rates affect his payout?
The payout remains the same for life.
Market value adjusted (MVA) annuities are fixed annuities. When does the market value come into play?
When the annuity is surrendered early.
If an annuity owner receives $2000.00 a month, and the value of each annuity unit is $2, how many units does he receive monthly?
$1000
An equity-indexed annuity will provide which of the following benefits?
A guarantee that the account balance will not decline below the initial deposit
Kimberly works for a nonprofit, charitable organization. What distinct class of retirement plans is available to Kimberly and other employees of certain nonprofit charitable organizations?
A tax-sheltered annuity
A 1035 exchange is allowed on any of the following transactions EXCEPT:
An annuity to a life insurance policy
Who of the following are regulated by NASD when selling variable annuities?
Brokers and dealers
An annuitant bought an immediate annuity at the age of 60. When she turned 65, she decided that she wanted to stop the annuity, get a refund of the remaining amount, and move to Brazil. What does the annuity company do?
Continue sending the monthly checks
A variable annuity separate account will be invested in which of the following types of investments?
Equity investments
Gail surrendered her life insurance policy for its cash value. Why was some of the cash value she received taxable?
The cash received exceeded the premiums paid.
Which of the following is NOT a characteristic of a "joint and survivor" annuity?
The company cannot use the sex of the individuals as a payout factor.
Nick has paid a large lump sum of cash to the insurance company for an immediate fixed annuity. That money will be invested by the insurance company in what fund?
The company's general fund
All of the following are purposes of an annuity EXCEPT:
To completely replace income after retirement
For a single premium deferred annuity, the ___________________ is the time between the purchase date and the date when benefits begin.
accumulation phase
All periodic premium annuities are _______________.
deferred
The ____________ is used to calculate the tax-free portion of an annuity payment.
exclusion ratio
If the value of each annuity is $6, and the annuitant (Andrew) receives $1,800 per month, how many annuity units does Andrew receive?
$300
Jose purchased an annuity for $20,000 and the expected return is $40,000. If the annuity pays $600 per month, what portion of the $600 is taxable?
$300 (half of it)
Daniel accumulated $80,000 in his annuity. He is receiving $800/month and each unit is worth $2.00. How many units does he receive each month?
$400
Mrs. Kupchock, who is 78 years old, has received the benefits of her husband's life insurance policy. Although she is quite frail, her agent has recommended that she invest the proceeds in an immediate annuity. Her grandson does not think it is her best option. Why?
-An immediate annuity is a suitable option for a healthy individual who probably will live longer than most people in his/her age group. -Because her life expectancy is not very good, she will probably lose most of her investment.
The individual on whose life the annuity has been issued is the annuitant. Which of the following is a right and/or responsibility of the annuitant?
-The annuitant pays the premiums. -The annuitant chooses the beneficiary.
Sophie has a variable annuity. She wants to know when she reaches retirement, what percent of the total value of all accumulation units credited to her account will be converted to annuity units?
100%
Mrs. Jurandi owns a small bakery. What is her social security tax rate?
12.4%
Additional tax qualified retirement plans may include any of the following EXCEPT:
501 (c) (3) plan
Brad purchased a fixed annuity for $40,000 that has a guaranteed benefit of $50,000. What will be the exclusion ratio?
80%
A Roth IRA differs in all of the following ways from a traditional IRA EXCEPT:
A Roth contribution is deductible under specific circumstances.
A variable annuity has each of the following features EXCEPT:
A minimum guaranteed income benefit
To have an approved presentation of a variable annuity the prospect must receive which of the following documents?
A prospectus and an approved illustration
Earl has deposited a large lump sum with an insurance company and he will begin receiving monthly payments next month. Earl has purchased:
A single premium immediate annuity
What must happen before the payout phase begins on an annuity?
Accumulation units must be converted to annuity units
Several factors impact annuity benefits. Which of the following is NOT an annuity benefit factor?
Age of beneficiary
Which of the following is a benefit provided by an annuity contract that makes it different from other investments?
An annuity contract provides income for life.
Which of the following is entitled to a paid-up deferred variable annuity?
Annuitants who discontinue premium payments
Accumulation units must be converted into ________ before variable annuity benefits can be paid out.
Annuity units
Before variable annuity benefits can be paid out, accumulation units must be converted to:
Annuity units
___________ determine(s) the value of a separate account in an annuity during payout.
Annuity units
When does a deferred annuity begin to pay benefits?
At a specified number of years after purchase, but no sooner than at least one year after purchase
When does the fixed income, paid to two or more annuitants at the same time, under a joint and survivor annuity, stop?
At the death of the last annuitant
A qualified retirement plan differs from a non-qualified retirement plan in all of the following ways EXCEPT:
Contributions to a non-qualified plan are deductible on a current basis.
Bill has several employees that he would like to retain for the long term good of his company. He has paid in the maximum allowed on his qualified retirement plan. What is a possible choice that would provide both Bill and his key employees an additional benefit?
Deferred compensation plan
Anthony is continuing to buy when the stock market levels are fluctuating. This activity, which tends to average out the cost of units during the pay-in period, is called -
Dollar cost averaging
Averaging out the cost of units during pay-in period is referred to as which of the following?
Dollar cost averaging
There are many types of retirement plans. Which of the following is not a qualified plan?
Executive bonus
Annuities have a variety of payout options. These options provide the annuitant with choices on how the annuity settlement will occur. All of the following are annuity payout options EXCEPT:
Flexible payment
What will Perry, an annuitant, receive if he selects a life with period certain as his annuity option?
He will receive a payout for life or a fixed number of years - whichever is last. Correct
Which of the following statements is true about a life income annuity?
If the annuitant is older, the payment is larger.
Frank has set up a monthly payment from his fixed annuity. He knows that he will receive $2,000 per month until his death. Frank's family has a history of living well into their 90s. What is Frank's biggest risk if he lives that long?
Inflation
For what period of time does a joint and survivor income option on an annuity pay?
It ceases when the second annuitant dies.
For those considering an immediate annuity, which of the following is not an advantage of this type of investment?
Loan privileges
The Oglobo Company is starting a marketing campaign to provide prospective applicants with the information needed to make a decision on whether or not to purchase an annuity. They must determine their target audiences. Which of the following would be most likely to purchase an immediate annuity?
Man who received a settlement for injuries occurring from an automobile accident
The owner of an annuity can stop making premium payments during the accumulation period without losing the value that has accumulated in the annuity. The right to the cash value that has accumulated in the annuity is called the -
Nonforfeiture option
How is the benefit amount that an annuitant receives from a variable annuity determined?
Number and value of annuity units
Tax sheltered annuity plans are available to employees of the following type of organizations:
Public school systems and other "not- for- profit" groups
In order to sell variable annuities, the sales person must be qualified. What is required to qualify to sell variable annuities?
Registration with FINRA and an insurance license from the state
Which of the following retirement plans does NOT automatically qualify for a federal income tax deduction?
Single premium deferred annuity
A variable annuity company's separate account is regulated by which of the following?
The SEC
What is the period called from when the annuity contract is issued to when the payments start?
The accumulation period
When considering a variable annuity, the prospect should review all of the following EXCEPT:
The expected return for each separate account
An annuity is used to protect the annuitant against which of the following risks?
The risk of outliving one's income
Under a variable annuity policy, when will a paid-up deferred variable annuity be issued?
When premium payments are discontinued
How is an immediate annuity purchased?
With a lump sum payment
Sasha purchased an immediate annuity. How soon can the payment begin?
Within 1 year or less from the time it is purchased
Can Vicki, who has a valid life insurance license in the state, also sell variable annuities?
Yes, if she has a Series 6 or Series 7 license
An individual may deduct an IRA contribution from his taxable income in the following situation:
You or your spouse are not covered by a company sponsored qualified plan
Variable annuities guarantee ___________.
against outliving your income
Clancy has bought a single premium immediate annuity. He must start taking payments _____.
within 12 months
What is the benefit-paying period of an annuity called?
Annuity period
Izzy has funded a fixed annuity over time and has a substantial account value. He wants to remodel his home before retirement. He would like to make a policy loan to pay for the home upgrade. What is the main consideration when he decides how to structure the loan?
Annuity plans do not have loan provisions.
Which of the following is the annuity option which will not cover life's contingencies?
Period certain
Who is responsible for regulation of variable annuities?
SEC and state insurance department
Who is responsible for the regulation of variable life insurance?
SEC and state insurance department
The benefit amount that an annuitant receives from a variable annuity is determined by which of the following?
The number and value of annuity units
A fixed annuity may offer any of the following income options EXCEPT:
A joint income for three individuals
Which of the following is NOT often included in variable annuity options?
A lump sum payout
A market value adjusted annuity differs from other fixed annuities in which of the following ways?
A market rate annuity will usually credit a higher interest rate than a fixed annuity.
James wants to have his annuity pay him until he dies, with no payments to anyone after his death. Which of the following annuities will best serve his wishes?
A straight life annuity
As with all investments, there are risks and rewards, advantages and disadvantages. All of the following are disadvantages of immediate annuities EXCEPT:
In the event of a downturn in the market, the benefit payments remain level. Correct
James is an annuitant receiving monthly payments from a variable annuity under a joint and 2/3 to the survivor option. What will the surviving annuitant receive when the primary annuitant dies?
Monthly payments for life of a dollar value of two thirds of the annuity units that were previously being distributed
The payout option for an annuity is selected by the owner of the annuity. Which of the following is true?
Once the payout option is selected, it cannot be changed after payments begin.
Variable annuities were created in order to do which of the following?
To protect against inflation
An equity-indexed annuity will have all of the following features EXCEPT:
Dividends from the index chosen, if any are paid
Mr. Brown knows that his social security benefits are determined using a formula based on his earnings. Which of the following is a traditional benefit of the social security program?
-Monthly disability benefits for disabled workers and their dependents -Monthly benefits for spouses of retired workers -Lump sum death benefit
What is the primary function of an annuity?
Income for life
Annuities offer various premium payment options. Which of the following is not an annuity premium payment option?
Indexed premium
An ordinary deferred annuity with a decreasing term life insurance rider is called a -
Retirement income annuity
Who is responsible for regulating the separate account of a variable annuity?
SEC
Margaret began receiving monthly benefits from her annuity in November of 2011. In May of 2012 her aunt passed away and she received an inheritance. She would like to provide a guaranteed income stream for twenty years. What are her options?
She can purchase a life annuity certain.
Mary has reached age 65 and she wants to begin a monthly income on her fixed annuity. She has funded her plan with after- tax contributions, and she wants to know what her tax liability will be going forward. Her agent explains that her tax will be calculated using:
The exclusion ratio
Insurance companies use 5 major factors to determine annuity premiums. All of the following are common factors used to determine premiums for annuities EXCEPT:
The marital status of the annuitant
Anita's sister funded her annuity with a single lump-sum premium. Anita ,however, is looking at funding her annuity over time. Which of the following is not a true statement about annuities funded with periodic payments?
There is no option for flexible premiums
The owner of an insurance policy and the insured are usually the same person. However, sometimes the policy owner is a different person. This is known as -
Third party
