******CA Life & Health Chapter 7 Annuities Multiple Choice
Fixed annuities provide all of the following EXCEPT A) Future income payments B) Hedge against inflation C) Equal monthly payments for life D) Minimum guaranteed rate of interest
B) Hedge against inflation
Which of the following is NOT true regarding an annuity certain? A) Benefits stop at the annuitant's death B) it will pay until a fixed amount is liquidated C) There are no life contingencies D) It is a short-term annuity
A) Benefits stop at the annuitant's death
When a fixed annuity owner pays a monthly annuity premium to the insurance company, where is the money placed? A) The insurance company's general account B) Forwarded to an investor C) Each contract's seperate account D) The annuity owners account
A) The insurance company's general account
When an annuity is written, whose life expectancy is taken into account? A) Beneficiary B) Life expectancy is not a factor when writing an annuity C) Owner D) Annuitant
D) Annuitant
An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin after 1 year since the annuity was purchased. What type of annuity is it? A) Fixed B) Flexible premium C) Immediate D) Deferred
D) Deferred
As it pertains to IRA eligibility, which of the following would NOT be considered earned income? A) Wages for a part-time job B) Commissions C) An annual salary D) Unemployment benefits
D) Unemployment benefits
Which of the following is a feature of a variable annuity? A) Interest rate is guaranteed B) Securities license is not required C) Benefit payment amounts are not guaranteed D) Payments into the annuity are kept in the company's general account
C) Benefit payment amounts are not guaranteed
A tax-sheltered annuity is a special tax-favored retirement plan available to A) Certain age groups only B) Certain age groups depending on factors such as race, gender, and age C) Certain groups of employees only D) Anyone
C) Certain groups of employees only
Which of the following is another term for the accumulation period of an annuity? A) Premium period B) Liquidation period C) Annuity period D) Pay-in period
D) Pay-in period
Which of the following products requires a securities license? A) Equity indexed annuity B) Deferred annuity C) Variable annuity D) Fixed annuity
C) Variable annuity
The annuity owner dies during the accumulation period without naming a beneficiary. Annuity's cash value exceeds premiums paid. Which of the following is TRUE? A) The cash value will be paid to the annuitant's estate B) The premium value will be paid to the annuitant's estate C) All benefits will be forfeited D) The cash value will be paid to the state government
A) The cash value will be paid to the annuitant's estate
A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy? A) Life with period certain B) Joint limited annuity C) Joint life D) Joint and survivor
C) Joint life
Who can make a fully deductible contribution to a traditional IRA? A) Anybody: all IRA contributions are fully deductible regardless of income level B) Someone making contributions to an educational IRA C) A person whose contributions are funded by a return on investment D) An individual who has earned income
D) An individual who has earned income
In general terms, IRA contributions A) Are deducted based on the income level B) Are never tax deductible C) Are partially tax deductible depending on the income level D) Are tax deductible
D) Are tax deductible
What qualifies an individual to contribute to an IRA? A) Any income B) Investment income C) Retirement income D) Earned income
D) Earned income
Which of the following types of annuities will generally provide the highest monthly income? A) Straight life B) Joint and survivor C) Installment period D) Life with a 10-year period certain
A) Straight life
Which of the following is NOT true about a joint and survivor annuity benefit option? A) Payments stop after the first death among annuitants B) A period certain option may be included C) This option guarantees income for two or more recipients D) The surviving annuitant may receive reduced payments
A) Payments stop after the first death among annuitants
Which of the following is NOT true regarding Equity Indexed Annuities? A) They earn lower interest rates than fixed annuities B) The insurance company keeps a percentage of the returns C) They have guaranteed minimum interest rates D) They are less risky than variable annuities
A) They earn lower interest rates than fixed annuities
After three years of making payments into a flexible premium deferred annuity, the owner decides to surrender the annuity. The insurer returns all the premium payments to the owner, except for a predetermined percentage. What is this percentage called? A) Bail-out charge B) Inflation adjustment C) Surrender charge D) Termination penalty
C) Surrender charge
An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n) A) Variable annuity B) Flexible annuity C) Immediate annuity D) Equity indexed annuity
D) Equity indexed annuity
Which of the following is NOT true regarding the annuitant? A) The annuitant's life expectancy is taken into consideration for the annuity B) The annuitant receives the annuity benefits C) The annuitant must be a natural person D) The annuitant cannot be the same person as the annuity owner
D) The annuitant cannot be the same person as the annuity owner
Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity? A) Statewide predetermined annual interest rate B) Insurer's guaranteed minimum rate of interest C) Investment performance of the company D) Investment performance of the insured
B) Insurer's guaranteed minimum rate of interest
The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true? A) The contract can be issued without an annuitant B) The annuitant must be a natural person C) A corporation can be an annuitant as long as it is also the owner D) A corporation can be an annuitant as long as the beneficiary is a natural person
B) The annuitant must be a natural person
If a beneficiary is NOT named for annuity benefits, to which entity will the benefit be paid? A) The insurance company B) The annuitant's estate C) The next of kin D) The state government
B) The annuitant's estate
Which of the following is true regarding a market value adjusted annuity? A) It provides a level benefit payment B) The owner is guaranteed a fixed interest rate for a specific period of time C) The insurer bears all the market risk of changing interest rates D) There are no penalties for a premature surrender of the annuity
B) The owner is guaranteed a fixed interest rate for a specific period of time
If an annuitant dies before annuitization occurs, what will the beneficiary receive A) Either the amount paid into the plan or the cash values of the plan, whichever is the greater amount B) Either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount C) Amount paid to the plan D) Cash value of the plan
A) Either the amount paid into the plan or the cash values of the plan, whichever is the greater amount
All of the following statements are true regarding installments for a fixed amount EXCEPT A) The payments will stop when the annuitant dies B) Value of the account and future earnings will determine the time period for the benefits C) This option pays a specific amount until the funds are exhausted D) The annuitant may select how big the payments will be
A) The payments will stop when the annuitant dies
All of the following are true regarding a qualified annuity EXCEPT A) Employer contributions are not counted as income to the employee while the plan is in force B) At distribution, all amounts received by the employee are tax free C) Employer contributions are tax deductible as ordinary business expense D) Funds accumulate on a tax-deferred basis
B) At distribution, all amounts received by the employee are tax free
All of the following statements are true of a nonqualified retirement plan EXCEPT A) They do not qualify for special tax treatment by the IRS B) Contributions are tax exempt C) Increases of funds are not taxed until received D) Contributions grow tax deferred
B) Contributions are tax exempt
The Waiver of Cost of Insurance rider is found in what type of insurance? A) Joint and Survivor B) Juvenile life C) Universal life D) Whole life
C) Universal life
Which of the following is NOT true regarding Equity Indexed Annuities? A) The insurance company keeps a percentage of the returns B) They have guaranteed minimum interest rates C) They are less risky than variable annuities D) They earn lower interest rates than fixed rates
D) They earn lower interest rates than fixed rates
Which of the following is a short-term annuity that limits the amounts paid to a certain fixed period or until a certain fixed amount is liquidated? A) Variable annuity B) Annuity certain C) Fixed annuity D) Refund life
B) Annuity certain
What license or licenses are required to sell variable annuities? A) No license is required B) Both a life insurance license and a securities license C) Only a life insurance license D) Only a securities license
B) Both a life insurance license and a securities license
The advantage of qualified plans to employers is A) Taxable contributions B) Tax deductible contributions C) Tax free earnings D) Do not have to provide lump sum payments
B) Tax deductible contributions
The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE? A) The money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary B) The beneficiary will receive the greater of the money paid into the annuity or the cash value C) The owner's estate will receive the money paid into the annuity D) The insurance company will retain the cash value and pay back the premiums to the owner's estate
B) The beneficiary will receive the greater of the money paid into the annuity or the cash value
All of the following statements are true regarding installments for a fixed period annuity settlement EXCEPT A) The payments are not guaranteed for life B) The insurer determines the amount for each payment C) It is a life contingency option D) It will pay the benefit only for a designated period of time
C) It is a life contingency option
Your client is planning to retire. She has accumulated $100,000 in a retirement annuity, and now wants to select the benefit option that will pay the largest monthly amount for as long as she lives. As her agent, you should recommend A) Installment refund B) Joint and survivor C) Straight life D) Life income with period certain
C) Straight life
Which of the following is NOT a legitimate use of annuities by a business? A) Providing an investment vehicle B) Creating a tax shelter C) Funding employee retirement plans D) Providing deferred compensation for employees
B) Creating a tax shelter
Which of the following is TRUE regarding variable annuities? A) The company guarantees a minimum interest rate B) A person selling variable annuities is required to have only a life agent's license C) The annuitant assumes the risks on investment D) The funds are invested in the company's general account
C) The annuitant assumes the risks on investment
A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select? A) Joint and survivor B) Joint annuity C) Cash refund annuity D) Straight life
A) Joint and survivor
Which of the following is TRUE regarding the annuity period? A) It is also referred to as the accumulation period B) It is the period of time during which the annuitant makes premium payments into the annuity C) It may last for the lifetime of the annuitant D) During this period of time the annuity payments grow interest tax deferred
C) It may last for the lifetime of the annuitant
Who would be eligible to contribute to an IRA? A) A 35 year old receiving monthly unemployment checks B) An 18 year old non-working student C) A 50 year old school teacher D) A 75 year old professional earning income
C) A 50 year old school teacher
Who is eligible to purchase an IRA? A) Anyone who has an established 401(k) B) Only people who participate in their company retirement plan C) Anyone under the age 70 1/2 who has earned income D) Anyone who does not participate in their company retirement plan
C) Anyone under the age 70 1/2 who has earned income
If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined? A) It is always 7% of the cash value B) It is a flat fee determined by the annuity owner when the annuity is purchased C) It will increase as the accumulation period increases D) It is a percentage of the cash value and decreases over time
D) It is a percentage of the cash value and decreases over time
Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits A) 50,000 B) 62,500 C) 75,000 D) Nothing
A) 50,000
Which of the following is NOT true regarding the Life with Guaranteed Minimum annuity settlement option? A) It does not guarantee that the entire principal amount will be paid out B) It is a life contigency option C) The beneficiary receives the remainder of the principal amount upon the annuintant's death D) Payments can be made in installments and as single cash refund
A) It does not guarantee that the entire principal amount will be paid out
The minimum interest rate on an equity indexed annuity is often based on A) The annuitant's individual stock porfolio B) The insurance company's general account investments C) An index like Standard & Poor's 500 D) The returns from the insurance company's seperate account
C) An index like Standard & Poor's 500
All of the following employees may use a 403(b) plan for their retirement EXCEPT A) Part-time classroom aide B) The vice president of a charitable organization C) The CEO of private corporation D) A school bus driver
C) The CEO of private corporation
What determines the penalty for surrendering a market value adjusted annuity prematurely? A) There are not penalties imposed for surrendering annuities prematurely B) The guaranteed minimum interest rate provided in the contract C) The current interest rate at the time of surrender D) The flat fee determined by an index of interest gains and the amount of time the annuity would take to mature
C) The current interest rate at the time of surrender
What determines the penalty surrendering a market value adjusted annuity prematurely? A) There are no penalties for surrendering annuities prematurely B) The guaranteed minimum interest rate provided in the contract C) The current interest rate at the time of surrender D) The flat fee determined by an index of interest gains and the amount of time the annuity would take to mature
C) The current interest rate at the time of surrender
Which of the following statements is INCORRECT concerning an IRA? A) Married individuals can contribute into two separate accounts, up to a specified amount for each person B) Anyone under the age of 70 1/2 who earns income can have an IRA C) An individual can contribute 100% of earned income up to a specified limit D) Married individuals must contribute into one account for both spouses, up to a specified amount for each person
D) Married individuals must contribute into one account for both spouses, up to a specified amount for each person
Which of the following will NOT be an appropriate use of a deferred annuity? A) Accumulating funds in an IRA B) Funding a child's college education C) Creating an estate D) Accumulating retirement funds
C) Creating an estate
Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive A) Nothing; the payments will cease B) Guaranteed mimimum benefit C) The amount paid into the annuity D) The remainder of the principal
A) Nothing; the payments will cease
An individual buys a flexible premium deferred life annuity with 20 year period certain. What would his beneficiary receive if he died 5 years after beginning the annuity phase? A) Payments for 15 years B) Payments for 20 years C) Payments for life D) Nothing
A) Payments for 15 years
An agent selling variable annuities must be registered with A) The Guaranty Association B) SEC C) FINRA D) Department of Insurance
C) FINRA
Which of the following statements best describes the effect of the Accelerated Benefit provision would have on the benefits paid to the beneficiary? A) It will reduce the benefits by 70% B) It will increase the benefits paid to the beneficiary C) It will decrease the benefits paid to the beneficiary D) It will not affect the benefits paid to the beneficiary
C) It will decrease the benefits paid to the beneficiary
The term "fixed" in a fixed annuity refers to all of the following EXCEPT A) Amount and length of payments B) Death benefit C) Guaranteed rate of interest D) Equal annuity payments
B) Death benefit
Which of the following statements is INCORRECT regarding IRAs? A) A nonworking spouse is eligible to contribute to a separate IRA account B) Anyone with earned income under the age of 70 1/2 may open a traditional IRA C) Accumulated contributions grow tax deferred D) Married couples are required to purchase a jointly owned IRA
D) Married couples are required to purchase a jointly owned IRA
Which of the following is TRUE for both equity indexed annuities and fixed annuities? A) They are both tied to an equity index B) Both are considered to be more risky than variable annuities C) They invest on a conservative basis D) They have guaranteed minimum interest rate
D) They have guaranteed minimum interest rate
All of the following information about a customer must be used in determining annuity suitability EXCEPT A) Annual income B) Beneficiary's age C) Tax status D) Financial experience
B) Beneficiary's age
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits? A) Deferred interest annuity B) Immediate annuity C) Variable annuity D) Flexible payment annuity
B) Immediate annuity
Under a pure life annuity, an income is payable by the company A) For as long as either the annuitant or a named beneficiary is alive B) Only for the life of the annuitant C) Until the principal and interest are exhausted D) For a guaranteed period of time, whether or not the annuitant survives to the end of that period
B) Only for the life of the annuitant
All of the following are true of an annuity owner EXCEPT A) The owner is the party who may surrender the annuity B) The owner must be the party to receive benefits C) The owner pays the premiums on the annuity D) The owner has the right to name the beneficiary
B) The owner must be the party to receive benefits
Which of the following best describes what the annuity period is? A) The period of time from the effective date of the contract to the date of its termination B) The period of time during which accumulated money is converted into income payments C) The period of time from the accumulation period to the annuitization period D) The period of time during which money is accumulated in an annuity
B) The period of time during which accumulated money is converted into income payments
The main difference between immedate and deferred annuities is A) How the annuity is purchased B) The number of insureds C) The amount of each payment D) When the income payments begin
D) When the income payments begin
According to the nonforfeiture law, if the owner decides to surrender a deferred annuity prior to annuitization, the owner is entitled to which of the following? A) Guaranteed surrender value B) No payments C) Annuity dividends D) Full premium refund without any charges
A) Guaranteed surrender value
A man purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it? A) Immediate B) Flexible C) Deferred D) Variable
A) Immediate
Under which of the following annuity options does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be? A) Installment fund B) Cash refund C) Installments for a fixed period D) Installments for a fixed amount
C) Installments for a fixed period
Which of the following is TRUE regarding the accumulation period of an annuity? A) It is a period of time during which the beneficiary receives income B) It is limited to 10 years C) It is a period during which the payments into the annuity grow tax deferred D) It is also referred to as the annuity period
C) It is a period during which the payments into the annuity grow tax deferred
What is the penalty for excessive contribution to an IRA? A) 4% B) 6% C) 10% D) 15%
B) 6%
Under which installments option does the annuitant select the amount of each payment, and the insurer determines how long they will pay benefits? A) Variable amount B) Fixed period C) Fixed amount D) Variable period
C) Fixed amount
Why is an equity indexed annuity considered to be a fixed annuity? A) It has most investment potential B) It has a fixed rate of return C) It is not tied to an index like the S&P 500 D) It has a guaranteed minimum interest rate
D) It has a guaranteed minimum interest rate
Which of the following best describes a pure life annuity settlement option? A) Pure life guarantees that all the proceeds will be paid out B) Benefits are paid for a fixed period of time, specified when the policy begins to pay C) Pure life provides payments for as long as both the annuitant and the spouse are living D) Pure life provides payments for as long as the annuitant is alive
D) Pure life provides payments for as long as the annuitant is alive
In a fixed annuity, which of the following is true regarding the guaranteed interest rate on the investment? A) The annuitant will receive the lower of either the guaranteed minimum rate or current rate B) The annuitant will only receive the guaranteed minimum specified in the contract C) The annuitant will receive the higher of either the guaranteed minimum rate or current rate D) The annuitant will always receive the current interest rate
C) The annuitant will receive the higher of either the guaranteed minimum rate or current rate
Which of the following are NOT fundable by annuities? A) Cash accumulation for any reason B) A person's retirement C) Estate liquidation D) Death benefits
D) Death benefits
A couple near retirement is planning for their golden years. They want to make sure that their retirement annuity provides monthly benefits for the rest of their lives. Should one of them die, the other would still like to continue receiving benefits. Which settlement option should they choose? A) Joint and survivor B) Joint life C) Life with period certain D) Straight life
A) Joint and survivor
If a contract provides a set amount of income for two or more persons with the income stopping upon the first death of the insured, it is called a A) Joint and survivor annuity B) Deferred annuity C) Pure annuity D) Joint life annuity
D) Joint life annuity
Equity indexed annuities A) Invest conservatively B) Seek higher returns C) Are more risky than variable annuities D) Are security instruments
B) Seek higher returns
What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? A) Installment refund B) Joint and survivor C) Pure life D) Life with guaranteed minimum
C) Pure life
Which two terms are associated directly with the way an annuity is funded? A) Immediate or deferred B) Renewable or convertible C) Single payment or periodic payments D) Increasing or decreasing
C) Single payment or periodic payments
An individual works for a manufacturing company. If he decides to fund a retirement plan for himself, for which of the following plans could he qualify? A) Individual retirement account B) 403(b) TSA C) HR-10 D) Simplified employee pension plan
A) Individual retirement account
If an annuitant selects the straight life annuity settlement option, in order to receive all of the money out of the contract, it would be necessary to A) Live at least to his life expectancy B) Die before his life expectancy C) Name a beneficiary D) Name another annuitant
A) Live at least to his life expectancy
All of the following statements about equity index annuities are correct EXCEPT A) The annuitant receives a fixed amount of return B) They have a guaranteed minimum interest rate C) The interest rate is tied to an index such as the Standard & Poor's 500 D) They invest on a more aggressive basis aiming for higher returns
A) The annuitant receives a fixed amount of return
An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n) A) Keogh plan B) Roth IRA C) SEP D) 403(b) Plan (TSA)
D) 403(b) Plan (TSA)
In an annuity, the accumulated money is converted into a stream of income during which time period? A) Payment period B) Amortization period C) Conversion period D) Annuitization period
D) Annuitization period
The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called A) Life income with refund B) Joint and survivorship C) Joint life annuity D) Life income with period certain
D) Life income with period certain
Which of the following can surrender a deferred annuity contract? A) The beneficiary after the owner's death B) A deferred annuity cannot be surrendered C) Only the annuity owner D) Only the insurance company for nonpayment of premiums
C) Only the annuity owner
What happens if a deferred annuity is surrendered before the annuitization period? A) The insurer can only apply the surrender value toward another annuity B) Deferred annuities cannot be surrendered prior to the annuitization period C) The owner will receive the surrender value of the annuity D) The owner will only receive a refund of premium
C) The owner will receive the surrender value of the annuity
An insurance company forwards annuity premiums to their general account where the money is invested. The guaranteed minimum interest is set at 2.5%. During an economic downswing, the investments only drew 2%. What interest rate will the insurer pay its policyholders? A) 2% B) 2.5% C) 3% D) Whatever interest rate the company deems appropriate
B) 2.5%
If the annuitant dies during the accumulation period, who will receive the annuity benefits? A) The annuitant's estate B) The beneficiary C) The annuity owner D) The insurance company
B) The beneficiary
Who bears all of the investment risk in a fixed annuity? A) The annuitant B) The insurance company C) The owner D) The beneficiary
B) The insurance company
How are contributions to a tax-sheltered annuity treated with regards to taxation A) They are taxed as income for the employee, but are tax free upon withdrawal B) They are not included as income for the employee, but are taxable upon distribution C) They are never taxed D) They are taxed as income for the employee
B) They are not included as income for the employee, but are taxable upon distribution
Which of the following is NOT true regarding the accumulation period of an annuity? A) It is the period during which the annuity payments earn interest B) It is the period over which the owner makes payments into an annuity C) It is also known as the pay-period D) It would not occur in a deferred annuity
D) It would not occur in a deferred annuity
A 403(b) plan, commonly referred to as a TSA, is available to be used by A) Government workers B) Postal employees C) Self-employed persons D) Teachers and not-for-profit organizations
D) Teachers and not-for-profit organizations
Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income? A) Pay-out period B) Liquidation period C) Depreciation period D) Annuitization period
C) Depreciation period