Annuities - Life Insurance

Annuities are different from life insurance in which of the following ways? a-Annuities liquidate rather than create an estate. b-Annuities can create or liquidate an estate. c-Annuities insure against dying too soon. d-Annuities create rather than liquidate an estate.

a-Annuities liquidate rather than create an estate.

Generally, which settlement option will offer the highest monthly payment to an annuitant? a-Life annuity (a.k.a. Straight or Pure Annuity) b-Joint and last survivor life annuity c-Life with period certain annuity d-Unit life refund annuity

a-Life annuity (a.k.a. Straight or Pure Annuity) Because the insurer has no more liability for payments after the annuitant dies, this policy will have the highest payments per month to the annuitant while alive.

Which annuity payout option guarantees a payout of principal but may pay more? a-Life with refund b-Straight Life c-Life with Period Certain d-Survivorship life

a-Life with refund If the word LIFE is in the payout, the annuitant is paid regardless if they outlive the principal. If the annuitant dies prior to the full amount of principal being paid out, a refund is made to a named beneficiary.

A stipulated sum payable at certain regular intervals during the lifetime of one or more persons, or payable for a specified period. This definition could be used to define a/an __________. a-annuity or settlement option b-settlement option c-annuity d-life insurance policy

a-annuity or settlement option

Annuities have built in expenses including a CDSC. This is a Contingent Deferred Sales Charge which works similar to a surrender charge on a Universal Policy. If there is a 10 year surrender period, the amount kept by the insurer after 2 years is a-10% b-9% c-7% d-8%

b-9% In the 1st year there is a 10% surrender fee or sales charge, year 2 has a 9% fee, year 3 has an 8 % fee and on through year 11 where it has dropped to 0. It is important to understand this when selling a product or replacing an existing annuity

An annuity which provides an income during a specified period, regardless of whether the annuitant lives or dies, is called which of the following? a-A joint annuity b-A life with amount certain annuity c-A life annuity with period certain d-An annuity certain

d-An annuity certain Annuity Certain (Fixed) Payout Options are guaranteed by the insurance company. If the annuitant dies before a fixed period of time or all of the principal has been paid to the annuitant, a beneficiary will receive payments for the balance of time or until all of the principal has been paid out. The fixed options guarantee payout of all of the principal and interest and allow the annuity owner to cash-out the contract.

Under a unit refund life settlement option, if the annuitant dies shortly after beginning to receive payments, the annuity pays to the beneficiary: a-A refund of the premium payments. b-Only a death benefit. c-The value of any remaining accounts which had been guaranteed to be paid out of the contract. d-The value of a fixed number of units.

c-The value of any remaining accounts which had been guaranteed to be paid out of the contract.

An annuity providing for income payments to begin at some future date, such as a specified number of years or at a specified age, is called __________. a-an immediate annuity b-a temporary annuity c-a fixed amount settlement option d-a deferred annuity

d-a deferred annuity

If the purchaser of a variable immediate annuity is guaranteed to receive payments for a minimum of 240 months (20 years), the annuity is a __________. a-variable life annuity b-straight life variable annuity c-20-year certain annuity d-variable life with period certain annuity

d-variable life with period certain annuity Life with period certain is the correct answer because it is the only answer that guarantees a MINIMUM of 20 years (but could pay longer because it is a life annuity). The annuity certain guarantees a MAXIMUM of 20 years

Equity Index Annuities are a hybrid product that offers: a-A fixed guaranteed return and the opportunity to participate in the upside potential of the stock market. b-A maximum guaranteed return with no equity market return. c-No guaranteed return and the opportunity to participate in the upside potential of the equity markets. d-A minimum guaranteed return but no opportunity to participate in the upside potential of the equity markets.

a-A fixed guaranteed return and the opportunity to participate in the upside potential of the stock market.

All of the following regarding a variable annuity are true, except: a-It was designed to provide protection against the inflationary erosion of dollars set aside for retirement. b-It is equity based, which means that the insurer assumes the investment risk and guarantees the return. c-The sale requires that the salesperson have an insurance license. d-A securities license is required for the sale of variable products.

b-It is equity based, which means that the insurer assumes the investment risk and guarantees the return. Variable Annuities are securities. The investment return depends on the performance of that separate account. A security license is required to sell variable contracts. The annuitant assumes the investment risk, with no guarantee on the interest earned on the premiums.

When does the payment (liquidation) begin on a variable immediate annuity contract? a-It must begin the next day after the contract is purchased. b-It must begin within one year of the purchase of the immediate annuity contract. c-It is set to begin after one year from the purchase date. d-There is no set time for the liquidation to begin after the purchase is made.

b-It must begin within one year of the purchase of the immediate annuity contract. An immediate annuity is purchased with a lump sum and must begin liquidation (payout) within one year. Any payouts further out than one year are considered deferred annuities.

Which of the following is not true about an equity indexed annuity? a-It has a guaranteed minimum interest rate. b-It requires a securities license to sell. c-You have the ability to participate in the upside potential of the equity markets. d-It is not considered a variable annuity.

b-It requires a securities license to sell. An equity indexed annuity is based on the performance of an index. For example, the S and P 500. The principle is guaranteed, and there is generally a minimum guaranteed return, though there is no guarantee on additional returns.

When a life insurance company wishes to segregate certain assets held to fund variable contracts, it will use a __________. a-split funding approach b-separate account c-double-entry bookkeeping system d-split-dollar arrangement

b-separate account

Which of the following is not a characteristic of an immediate fixed annuity? a-Specified minimum rate of return. b-Part or all of the interest may be guaranteed. c-Investment risk is assumed by the annuitant. d-Fixed annuity payout will begin within one year.

c-Investment risk is assumed by the annuitant. The investment risk is not assumed by the annuitant, but by the insurance company. Fixed annuities give a guaranteed return regardless of how much the insurance company makes or loses on their investments.

An annuity settlement option which provides a stated monthly amount to the annuitant and upon their death provides the same amount or a lesser amount for the lifetime of the survivor is? a-Life with Annuity Certain b-Joint Life c-Joint Life with Survivorship d-Refund Life Annuity

c-Joint Life with Survivorship

A type of settlement option that the annuitant can outlive is __________. a-a straight life annuity b-a life annuity with period certain c-an annuity certain d-a refund life annuity

c-an annuity certain An annuity certain pays for a certain number of years, then stops, which means an annuitant can outlive his money. A life option will always pay until the annuitant dies, and can not be outlived. The difference in life settlement options is what happens to the funds when the annuitant dies.

Two general categories of annuities (when benefits begin) are __________ and __________. a-ordinary and industrial b-immediate and fixed c-immediate and deferred d-fixed and ordinary

c-immediate and deferred Immediate annuities begin liquidating a lump sum within one year, and deferred annuities (the accumulation phase) defer liquidation to sometime in the future, usually retirement.

Which one of the following would not have any additional benefits paid to a beneficiary when the annuitant dies? a-Life with refund option b-Life with period certain option c-Fixed period option d-Joint life option

d-Joint life option Joint Life Annuity pays an income to two annuitants (with one check) and terminates at the death of either annuitant.

Melody is receiving a fixed life annuity. She can be certain that: a-She will receive payments for a fixed amount of time, such as 20 years. b-When she dies, her spouse will continue to receive payments for the rest of his life. c-When she dies, her estate will receive payments until the principal is exhausted. d-She will receive payments until her death.

d-She will receive payments until her death. She will receive payments until her death because it is a life annuity (pure option). There is no beneficiary.

All of the following are correct about a Life annuity, except: a-A life annuity can be outlived. b-Life annuities are ideal for retirement. c-Once the annuity payouts start, the insurance company guarantees to pay for life. d-No matter how long the annuitant lives, the income will continue from the insurer.

a-A life annuity can be outlived. Life annuities are ideal for retirement because their primary purpose is to provide an income you cannot outlive. Once the annuity payouts start, the insurance company guarantees that the payments will continue, no matter how long the annuitant lives, thus giving a lifetime guarantee of income

A flexible premium annuity features which of the following? a-A single set amount premium is paid by the annuitant on an annual basis. b-The purchaser has the option to vary the amount of each premium payment falling between a minimum and maximum amount. c-The company promises to pay the annuitant an amount each period beginning after a single lump sum payment. d-The actual amount of the annuity benefit is determined in advance.

b-The purchaser has the option to vary the amount of each premium payment falling between a minimum and maximum amount.

Which of the following is incorrect regarding Life Insurance Settlement Options? a-The right to elect or change settlement options rests with the policyowner. b-The policyowner may choose any option under which Death Proceeds will be distributed to the beneficiary. c-If the policyowner does not choose an option, the beneficiary will receive death proceeds on a pro-rata basis. d-If the policyowner does not choose an option, the beneficiary has the right to decide how to receive death proceeds.

c-If the policyowner does not choose an option, the beneficiary will receive death proceeds on a pro-rata basis.

Eugene receives payments under an annuity for several years. At his death, his widow receives a lump-sum payment. This annuity was probably a/an __________. a-annuity certain for 20-years b-life annuity c-refund annuity d-joint and survivor annuity

c-refund annuity A life annuity ends with the death of the annuitant. A survivorship annuity ends when the survivor dies. The 20-year certain annuity will pay for 20 years and then stop. The cash refund annuity will give a lump-sum to a beneficiary when the annuitant dies, if all of the principal had not been paid out.

During the accumulation phase of an annuity, the growth is a-taxable b-tax-free c-tax-deferred

c-tax-deferred All growth is tax-deferred in an annuity. It will be taxed when it is paid out to the annuitant.

The difference between an annuity settlement contract and using a settlement option to liquidate a death benefit by the beneficiary, is that: a-Settlement options are more beneficial to the companies. b-Annuity settlement options should always be chosen over life policy settlement options. c-Annuity settlement options will make the annuitant more income than life policy options. d-The annuity is a separate policy and the settlement option of a life policy is a contract provision found in all life policies.

d-The annuity is a separate policy and the settlement option of a life policy is a contract provision found in all life policies. All the other answers are incorrect because annuity options and life settlement options are used under different circumstances, but one is not better or more beneficial than the other. The way the settlement options payout are identical to the annuity payout options.

Which one of the following payout options might continue to pay benefits to a beneficiary? a-Fixed amount or period certain b-Joint c-Life with no refund d-Pure/straight

a-Fixed amount or period certain Under the fixed or period certain options, in the event the annuitant dies before the funds or fixed time in the annuity (or settlement) have been used up, the remainder is paid to the beneficiary. The other three options end when the annuitant dies.

Ms. M purchases a deferred variable annuity with $1000 down and plans on adding $500 per month. If the initial money purchased 100 accumulation units, the stock market jumped and her investment doubled, how many units does she now have? a-1000 b-200 c-50 d-100

d-100 She has 100 units and will keep that amount until she pays for and purchases more. The values of each unit increase or decrease according to the underlying investment performance.

What does a straight life annuity/settlement option do? a-It provides an income for life. b-It ends after a certain number of years. c-It pays as long as either of the two people alive. d-It pays until the original purchase price is refunded.

a-It provides an income for life. Life (Straight/Pure) with no refund is one where the annuitant receives a specified amount for as long as he lives. The obligation of the insurance company ends upon death.

What does a refund life annuity do? a-It provides a life income to the annuitant, and a minimum guarantee of the total principal be liquidated. b-It provides a death benefit that will refund the purchase price or cash left, whichever is greater. c-It provides that should the annuitant die prior to a period certain, the full principal will be paid to the beneficiary. d-It provides that the annuitant will receive a refund of the full purchase price when they die.

a-It provides a life income to the annuitant, and a minimum guarantee of the total principal be liquidated. A refund life annuity provides a life income to the annuitant, and guarantees that should the annuitant die prior to receiving payment at least equal to the value of the contract, the balance will be paid to his or her beneficiary.

Who has the right to select a settlement option in a life insurance policy? a-The policyowner b-The insured c-The beneficiary d-The insurer

a-The policyowner The Right to Elect or Change Settlement Options rests with the policyowner. The policyowner may choose any option under which the proceeds will be distributed to the beneficiary, regardless of the wishes of the beneficiary. However, if no option is chosen by the owner, the beneficiary has the right to decide how to receive the proceeds.

How are withdrawals from a deferred annuity taxed? a-A 10% early withdrawal penalty on the interest if money is withdrawn before age 59 1/2. b-Since the interest builds tax-deferred, the interest will be taxed upon withdrawal. c-If the annuity is a qualified annuity, all of the withdrawal is taxable. d-All of these answers are correct.

d-All of these answers are correct.

An immediate annuity is one where payouts start a-next month b-all of these c-immediately. d-within one year

b-all of these An immediate annuity has payments that start within one year from the date of the contract being signed

The major difference between an annuity and a settlement option is: a-An annuity is a contract purchased by an annuitant, and the settlement options is a policy provision included in life insurance policies. b-An annuity is found in life insurance policies. c-Settlement options need to be decided at the time of purchasing a life policy. d-Banks and stock brokers sell settlement options, and annuities are sold by insurance producers.

a-An annuity is a contract purchased by an annuitant, and the settlement options is a policy provision included in life insurance policies.

What does a life annuity with a period certain do? a-It provides a life income to the annuitant and guarantees that payments will be made for a specified period from the date annuity payments begin. b-It provides the annuitant benefits that will at least equal the purchase price. c-It provides an income for a specified period, but not beyond that period. d-It provides an income for life, but the payments stop when the annuitant dies.

a-It provides a life income to the annuitant and guarantees that payments will be made for a specified period from the date annuity payments begin.

Which of the following illustrates a single payment deferred annuity? a-Jill inherits $20,000 and purchases a variable annuity. It will begin to pay her a regular income in 15 years. b-A father purchases an annuity for his son at age 16. The semi-annual payments are $500. c-Cory purchases an annuity with his profit-sharing distribution. He immediately receives an annuity payment. d-Marc is receiving $100 a month from an annuity his father purchased for him this year.

a-Jill inherits $20,000 and purchases a variable annuity. It will begin to pay her a regular income in 15 years. The other answers are immediate annuities because they are liquidating a lump sum within one year of purchasing the annuity. The correct answer is that it begins liquidation sometime in the future (ex. in 15 years), and that is a deferred annuity.

Which annuity type links its benefit to an underlying investment account in an attempt to offset inflation? a-Variable b-Deferred c-Fixed d-Immediate

a-Variable

There are three principal types of annuities; fixed, equity index, and variable. Which is an incorrect statement regarding annuities? a-Variable annuities have an investment risk, even though there is a small guarantee. b-Fixed annuities have a minimum guaranteed rate of return. c-Some fixed annuities may pay more than the stated guaranteed amount (called excess). d-Variable annuities investment returns will depend on the performance of the equities market.

a-Variable annuities have an investment risk, even though there is a small guarantee. Traditional variable contracts do not give any guarantees on the investment return. The other answers are correct statements.

Steven Martini has an annuity that guarantees to give him payments for a minimum of 10 years, and guarantees that he will not outlive the payments. Steven has a/an __________. a-life with period certain b-annuity certain c-installment refund annuity d-privatized with period certain

a-life with period certain Any time an annuity guarantees to pay you for as long as you live, it is a life annuity. If an annuity guarantees to pay you for a certain period of time, it is a certain annuity. If both are characteristics of the same annuity, you would have a life annuity with a period certain.

Which settlement option should you recommend to an insured/policyowner who wants to be sure that upon his death, his spouse will be guaranteed an income for life, and that she or someone she specifies will collect at least the total amount of the death benefit of the life insurance policy? a-Life income with a period certain b-Refund life income c-Lump sum payment d-Installment payments of a fixed amount per month

b-Refund life income Life with refund provides income to the annuitant for life and payment to the beneficiary if the annuitant dies prior to receiving an amount equal to the full amount paid for the annuity (Principal). (Also known as Cash Refund Annuity or Installment Refund Annuity.)

An Equity Index Annuity is a fixed or traditional annuity with a guarantee of, for example, 2% growth. The funding is linked to a well known stock market index like the Standard and Poor Industrial Index or the Standard and Poor Composite Index, and a-the annuity can only use one Index. b-the annuity can use two or more Indices for funding. c-the annuity must use one of those two Indices. d-the producer must have a Securities license to sell these annuities.

b-the annuity can use two or more Indices for funding.

Life insurance cash value can best be used to provide a life income by doing which of the following? a-By cashing in the policy and loaning the money to your children. b-By cashing in the policy and investing the income in the stock market. c-By exercising the dividend option. d-By exercising the (life) settlement option.

d-By exercising the (life) settlement option.

A beneficiary desiring an income of $1,000 per month to cover the dependency period of children should elect which of the following settlement options? a-Installments for a fixed period b-Deposit at interest c-Life income d-Installments for a fixed amount

d-Installments for a fixed amount

All of the following are correct statements regarding Settlement Options, except: a-The Right to Elect or Change Options rests with the policyowner. b-Settlement options may be used for proceeds received when a policy endows. c-Settlement options may be used for the surrendered cash value in a life policy. d-Settlement options are used only for the liquidation of death proceeds and may not be used for any other funds.

d-Settlement options are used only for the liquidation of death proceeds and may not be used for any other funds. Policyowners also may elect to use settlement options for the proceeds they receive when a policy endows or is surrendered for its cash value.

If annual (or level) premiums are paid for an annuity, it is being used in which of the following ways? a-It may be used to provide a flexible immediate annuity. b-It may be used to provide a fixed premium immediate annuity. c-It purchases an immediate annuity, with the first income payment within one year. d-To purchase a deferred annuity.

d-To purchase a deferred annuity. When premiums are being paid to the insurance company, the contract is a Deferred Annuity. If the insurance company is liquidating a lump sum of money in their possession, it is an Immediate Annuity. Immediate Annuities are purchased with a lump sum of money, not a premium payment.

Under Life Annuity Options, the Joint Life w/Survivorship option pays an income to two annuitants (with one check), but will continue to pay the second annuitant when the first annuitant dies. The annuitant chooses the amount of the continued payout, such as 1/2, 2/3, etc., of the original payout, at the time the annuity contract is purchased. Which of the following is true? a-When the survivor (annuitant) dies, all payouts continue for 6 months. b-None of these are true. c-When the survivor (annuitant) dies, all payouts continue for the entire contract period. d-When the survivor (annuitant) dies, all payouts stop.

d-When the survivor (annuitant) dies, all payouts stop. Remember, the survivor is NOT a beneficiary, the survivor is a joint annuitant!

The key advantage in a deferred annuity is __________. a-it forces the annuitant to save money and they can not withdraw any funds until age 59 1/2. b-payout options will have greater value. c-the cash build-up is tax-free. d-the cash build-up is tax-deferred until withdrawn.

d-the cash build-up is tax-deferred until withdrawn.