Ch 5 Annuities Quiz

Which of the following is another term for the accumulation period of an annuity? (A) Annuity period (B) Pay-in period (C) Premium period (D) Liquidation period

(A) Annuity period *(B) Pay-in period* (C) Premium period (D) Liquidation period *Explanation*: the accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity--earns interest on an after-tax basis

Which of the following is true regarding a modified guaranteed 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.

(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. *Explanation*:

Your client's employer does not offer a company-wide annuity contract. What type of annuity contract could your client obtain. (A) Nonqualified (B) Individual (C) Independent Group Contract (D) Single

(A) Nonqualified *(B) Individual* (C) Independent Group Contract (D) Single *Explanation*: There are 2 main types of annuities arrangements: group and individual. GROUP contracts can be obtained through an employer. If that option is not available, individuals could obtain an INDIVIDUAL annuity, which, as the name implies, is available for purchase and ownership solely by individuals.

Which of the following is true regarding the annuity period? (A) It may last for the lifetime of the annuitant. (B) During this period of time the annuity payments grow interest tax deferred. (C) It is also referred to as the accumulation period. (D) It is the period of time during which the annuitant makes premium payments into the annuity.

*(A) It may last for the lifetime of the annuitant.* (B) During this period of time the annuity payments grow interest tax deferred. (C) It is also referred to as the accumulation period. (D) It is the period of time during which the annuitant makes premium payments into the annuity. *Explanation*: The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.

The annuity owner dies during the accumulation period of his annuity. The cash value of his annuity exceeds the premiums he paid. There is no named beneficiary. 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) The state government will receive the amount of premiums paid. (D) The state government will receive the cash value of the annuity.

*(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) The state government will receive the amount of premiums paid. (D) The state government will receive the cash value of the annuity. *Explanation*: If an annuitant dies during the accumulation period, the beneficiary is paid either the cash value of the policy or the amount of premiums paid, whichever is the larger amount. In this case, a beneficiary is not named, so the cash value will be paid to the annuitant's estate