Annuities

What is another term used for a "pure" life annuity?

Life income

What does a fixed life annuity offer protection against ?

Savings depletion due to longevity

The main purpose of a annuity is to

Create a stream of income

A large corporation pension plan purchased an accumulation annuity contract where all of the participating employees received certificates of participation. What is this contract called?

Group deferred annuity

The administrator for a corporate pension plan bought an accumulation annuity contract for its 2,000 employees. All 2,000 participating employees received certificates of participation. What kind of contract is this?

Group deferred annuity

The surrender charge on many deferred annuity contracts are waived when the

Annuitant dies or becomes disabled

Which statement concerning a deferred annuity contract is correct?

The owner can be the beneficiary, annuitant, or neither

An annuity which starts paying monthly benefits within a month after issuance is called a(n)

Immediate annuity

The authority to change the beneficiary in an individual annuity lies with the

Owner

A single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct?

If the interest rate falls below a specified level, the surrender charge is waived

A retired couple would like to maximize the income derived from their combined life savings and have it payable until they both die. Which annuity would be their best choice?

Joint and survivor annuity

The contractual rights which allow the owner of a deferred annuity to surrender the cash value several years before the annuity date are cancelled

Nonforfeiture options

When does the owner's contractual rights begin under an individual annuity contract?

Time of purchase

Taking a sum of money and decreasing it in size is called

capital liquidation

During an annuity's liquidation phase, the annuitant normally

receives benefit payments at regular intervals

A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today?

$200,000

Which of the co-annuitants listed below would receive the largest monthly benefit payments in a joint and 100% survivor annuity?

Ages 71 and 73

An annuity's accumulation period may

Continue after the purchase payments stop

Interest is credited to a fixed annuity no lower than

Contract guaranteed rate

A life annuity with period certain is characterized as

Guaranteeing benefit payments for a stated minimum number of years

When compared to a fixed annuity, a variable annuity has what distinguishing feature?

Investment risk is assumed by the purchaser

Under which circumstance is the interest rate guaranteed within a market value adjusted annuity?

When the contract has been held for a stated time period

When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest earned minus

expenses and withdrawals

Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will

remain a constant dollar amount for the duration of the annuity period

Which of the following contracts offer deferred taxation, flexible payments, a guaranteed interest rate, and death benefits equal to the cash value?

Flexible premium fixed annuity

A business may purchase an annuity for all of the following reasons EXCEPT

Informally Funding a non-qualified deferred compensation plan

Which of these pays an income to two or more annuitants until the death of the last annuitant?

Joint and survivor annuity

Which of the following is associated with an immediate annuity?

Lack of an accumulation period

The owner of a single premium deferred annuity is entitled to do all of these EXCEPT

Make multiple premium payments

The annuitant in a single premium deferred annuity (SPDA)

Makes only one premium payment

John bought a deferred annuity on Mary. John amends the contract years later to name Tom as the recipient of the proceeds if Mary dies. Who is the annuitant for this contract?

Mary

Which benefit can be found in an equity indexed annuity, but not in a fixed annuity?

Protection against long-term inflation

How do benefit payments fluctuate over time in a variable life annuity?

Reflects changes in the market value of assets in a separate account

Which of the following would most likely purchase an immediate annuity?

Retiree having a lump sum to invest

When an annuity contract has been surrendered, how will the surrender charges affect the final contract settlement?

Settlement will be reduced

Sylvia purchased an annuity for $100,000 from the proceeds of an inheritance. No further payments are permitted and the income stream begins in 15 years. This contract is a(n)

Single Premium Deferred Annuity

What happens to the cash value of a market value adjusted annuity if it's surrendered prior to the end of the stated guarantee period?

Subject to market value adjustment

Under a deferred annuity, which contract feature initially charges a 5-10% fee that eventually reduces to $0 after a stated amount of time?

Surrender charge

Which of these annuity contract features is meant to discourage withdrawals and exchanges?

Surrender charges

Sarah, age 88, is a life annuitant who has lived beyond her life expectancy. The funds for additional benefit payments will be derived primarily from funds that were

not distributed to life annuitants who died before life expectancy

When a deferred annuity is surrendered, who must sign the authorization to do so?

owner

Who typically makes the purchase payments in an individual annuity?

owner

A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called

period certain

An insurer will typically assess a back-end load on a deferred annuity that is cancelled during the early contract years. What is this back-end load referred to as?

surrender charge

The interest credited to the cash values of personally-owned non-qualified annuities is considered

tax deferred

The interest paid during an annuity's payout period is considered

taxable as ordinary income

The exclusion ratio determines

the amount of an annuity payment subject to income tax

How are monthly life annuity benefit payments treated under a tax sheltered annuity (TSA)?

Taxed as ordinary income in the year received

What determines how much an annuitant is paid for a variable annuity?

The market value fluctuations of the securities backing it

The owner's cost basis for a non-qualified deferred annuity is typically the same as the

Total premiums paid

What is the effect of the market value adjustment in a market value adjustment annuity?

Transfers some of the investment risk to the policyowner

When does interest income for a flexible premium deferred annuity get reported for federal income taxes?

Upon receiving distributions from the contract

Which event triggers a deferred annuity to start making benefit payments to the annuitant?

When the contract is annuitized

Which of the following would NOT be appropriate for an immediate annuity?

A parent saving for a child's college

Which of the following is NOT a valid contract exchange?

An annuity exchanged for a life insurance policy

When a large sum of money is used to structure monthly payments, which product is typically used?

An immediate annuity

Which statement is INCORRECT concerning a tax-sheltered annuity (TSA)?

Annual investment gains are included in participant's gross income

A single-life annuity only has ONE

Annuitant

During the liquidation phase of an annuity contract, to whom are the income benefits normally payable to?

Annuitant

What is the tax treatment of benefit payments for a non-qualified annuity?

Benefit payments are always fully taxable

Which of the following is NOT an intended use of an annuity?

Create new funds upon the death of a wage-earner

An individual, age 45, would like to help pay for his daughter's college expenses in 10 years. Which annuity would be appropriate for this individual?

Deferred annuity

An annuitant is paid $495 per month until the contract value is exhausted at some undetermined date in the future. Which type of annuity payout option is this?

Fixed amount

Tori has an annuity that pays her a $500 per month income benefit for life or for ten years, whichever is longer. What kind of annuity is this?

Fixed life annuity with period certain

When a sum of money undergoes capital liquidation, that sum will

decrease in size

What happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up?

decreases

Which annuity allows contributions to an IRA?

deferred