Chapter 5 quiz
When dealing with seniors, producers must retain a copy of the Pre-Meeting (Scope of Appointment) Notice in their files for a minimum of how many years?
5 When dealing with seniors, producers must retain a copy of the Pre-Meeting (Scope of Appointment) Notice in their files for a minimum of 5 years.
What is the name of the person named in the annuity policy to potentially receive any residual benefits?
Beneficiary The beneficiary is the individual or person named in the contract to potentially receive benefits if the owner and/or annuitant die prior to annuitization or if the settlement option selected offers any residual benefit after the annuitant's death.
Which of the following annuities is known for having the highest surrender charge percentages and the longest surrender charge time periods?
Indexed Annuities Traditionally, Indexed Annuities have had the highest surrender charge percentages and the longest surrender charge time periods.
If an annuity lifetime benefit is selected in most cases, it is an _________ election.
Irrevocable If an annuity lifetime benefit is selected, in most cases it is an irrevocable election.
If an annuity policyowner stops putting money into their periodic or flexible premium annuity what happens to the policy values?
They are protected by the nonforfeiture provision Just like with life insurance any policy values contained in the contract are nonforfeitable for nonpayment of premium. They can be used for surrender or buying a paid up annuity.
An individual owns a variable annuity. Upon annuitization, the number of Annuity Units on which the benefit amount is based will __________ from month to month.
Remain the same It is important that the individual understand that upon annuitization, the number of units used to calculate the benefit amount will always be the same. It will be the unit value that fluctuates according to the performance of the separate account(s).
If a lump sum from a lawsuit, a lottery winning, or inheritance, is used to purchase a guaranteed lifetime income. It is referred to as a ___________.
Structured settlement Lump sum structured settlements come from lawsuits, lottery winnings, or an inheritance which can be used to purchase a structured settlement in the form of an annuity. The annuity can then be used to provide guaranteed lifetime income to the annuitant.
Which of the following annuities typically offers no guarantees?
Variable The variable annuity holder assumes all investment risk.
Which annuity is the only one regulated by the SEC, FINRA, and State insurance departments?
Variable Variable annuities are regulated by the SEC, FINRA, and State insurance departments.
Unless the owner specifically directs that the premium be invested in the mutual funds underlying the variable contract, during the free look period, the premium may be invested only in:
Fixed-income investments and money market funds During the 30 day cancellation period, the premium for variable annuities may be invested only in fixed-income investments and money market funds, unless the owner specifically directs that the premium be invested in the mutual funds underlying the variable contract.
What do both life insurance and annuities have in common?
Both are products based on a mortality table Both products are based on a mortality table. Annuities are sold primarily to supplement income at retirement. Life insurance is primarily used to create funds upon the death of the insured for surviving family members.
Before taking an application for an annuity, it is important to:
Determine the suitability of the product to the intended purchaser While annuities provide many types of benefits, they are not suitable for everyone and in every situation.
Which of the following is TRUE regarding Indexed Annuities?
Values and benefits may increase, but not decrease Because of the way Indexed Annuities are designed, they offer a portion of the potential upside of the index selected to determine the policy's interest credits, but in no case will the policy values or benefits go down if the index chosen falls in value.
A Variable Annuity is different from a Fixed Annuity because it must be sold with which of the following documents?
A prospectus A prospectus is a disclosure document that provides the prospective buyer with information about all fees, charges, expenses, and risks. It must be provided by the producer prior to sale of the variable annuity.
Which of the following death benefits is paid out to the beneficiary income tax free?
Life insurance when the insured dies while the policy is in force Only life insurance pays out an income tax free death benefit. While an annuity does allow for a beneficiary to be named, any tax deferred earnings are subject to income tax when paid out.
Instead of electing to annuitize the annuity, what is another common option chosen?
Lump sum distribution The annuitant has the option of cashing out the annuity in a lump sum instead of electing to receive a stream of income.
Z chooses a life income with 10 year period certain settlement option for the annuity Z owns. Z dies after 15 years of receiving income benefit payments. What does Z's beneficiary receive?
Nothing Since Z outlived the period certain, the beneficiary designated receives nothing.
If the annuity policyowner and annuitant are the same person and the designated beneficiary is the annuitant's spouse, what happens if the annuitant dies during the accumulation phase?
The IRS code allows for the surviving spouse to become the new owner and tax deferral continues When the contract owner and the annuitant are the same person and the designated beneficiary is the annuitant's spouse, the IRS code allows the spouse to assume ownership of the annuity upon the death of the annuitant. If death occurs during the accumulation period, all rights of ownership are assumed to include tax deferment.
Which of the following annuities offers the best opportunity to offset the effects of purchasing power loss over the long-run?
Variable Since variable annuities are directly tied to the performance of the underlying separate account(s), this annuity has the best chance of maintaining purchasing power as it has no caps, spreads, or administrative fees associated with Indexed annuities and returns include dividends.
Every insurer and life agent offering for sale individual life insurance policies, or individual annuity contracts that are issued for delivery to senior citizens in California with the use of non-preprinted illustrations of non-guaranteed values must disclose on those illustrations, or on an attached cover sheet, all of the following, except:
Guaranteed values are insured by the California Insurance Guaranty Association Every insurer and life agent offering for sale individual life insurance policies, or individual annuity contracts that are issued for delivery to senior citizens in California with the use of non-preprinted illustrations of non-guaranteed values must disclose on those illustrations, or on an attached cover sheet, all of the following: 'This is an illustration only. An illustration is not intended to predict actual performance. Interest rates, dividends, or values that are set forth in the illustration are not guaranteed, except for those items clearly labeled as guaranteed.'
Under which of the following plans can an annuity be funded up to the limits set by the insurer rather than by the IRS?
Nonqualified Annuities may be used as a nonqualified savings plan or as a qualified retirement plan. When nonqualified, annuity contributions are limited only to the extent that the insurance company has the right to limit the amount it is willing to accept for deposit at any one time. If used as a qualified or other type of retirement plan, contributions are limited according to the type of plan by the Internal Revenue Code.
Y just received an inheritance and instead of spending the money right now, decides to put it away for the future. What annuity premium funding would be best in this situation?
Single A single premium would allow Y to have the peace of mind of knowing that the inheritance is earning tax-deferred interest toward a future goal.
Which annuity has its income benefit payments related to an assumed interest rate (AIR)?
Variable The income benefit payment is tied to AIR. If the actual return is lower than the AIR, the monthly annuity payment will be reduced. If the actual return is equal to the AIR, the monthly annuity payment will remain the same as the previous month. If the actual return is greater than the AIR, the monthly annuity payment will increase from the previous month.
Surrender charges typically ____________ over time.
Decrease Surrender charges decrease over time until they disappear at which time the cash value and the cash surrender value are the same amount.
Mr. Zamboni is the owner and the annuitant of an annuity. Mrs. Zamboni, the designated beneficiary, will be able to assume all ownership rights and tax-deferral if Mr. Zamboni should die ___________.
During the Accumulation Period If Mr. Zamboni's death were to occur during the Accumulation Period, then his spouse, if she were the named beneficiary, would be able to become the new owner and continue the policy in force.
Jasmine has deposited $100,000 into a single premium immediate annuity. If Jasmine were to die before receiving $100,000 in payments, the balance of the $100,000 would be paid to her sister. Jasmine has selected the:
Life Income with Refund Option If Jasmine dies prior to receiving an amount equal to the total of all payments made into the annuity and the balance of that amount is refunded to a beneficiary either in a lump sum or in installments, she has chosen Life Income with Refund.
The annuity product which features fixed interest rate guarantees, combined with an interest rate adjustment factor that can cause the surrender value to fluctuate in response to market conditions, is known as:
Market Value Adjustment Market-Value Adjustment (Adjusted) Annuity is an annuity product that features fixed interest rate guarantees combined with an interest rate adjustment factor that can cause the surrender value to fluctuate in response to market conditions.
The insurer generally assumes the investment risk in all of the following annuities, except:
Variable The insurer's general account assets guarantee fixed-dollar annuity contracts, and the insurer bears any investment risk.
Generally, corporations can use annuities to fund all of the following, except:
Estate creation Corporations may use annuities to provide pensions for employees, funding nonqualified deferred compensation plans or qualified retirement plans, and even to structure payments from liability settlements, known as structured settlements.
Susan, age 65, inherits a substantial sum of money and wants to have the money distributed to her over the rest of her life starting next month. Which product offered by the life insurance industry will allow her to accomplish her objective?
Single Premium Immediate Annuity A Single Premium Immediate Annuity involves payment of a single sum to the insurer with periodic payments commencing within one year of deposit of the sum
In order for the next variable annuity income benefit payment to increase from the previous one received which of the following must occur?
The actual performance of the separate account must be greater than the policy's assumed interest rate According to the policy's structure the next variable payout amount is based upon a comparison between the actual investment performance of the separate account to the selected policy's assumed interest rate. If greater than the payment would increase.
When does the annuitization period begin?
When the policyowner elects to convert the annuity into an income benefit payment The annuitization period begins once the policyowner elects to convert the deferred annuity into an income benefit payment.
James is nearing retirement and has accumulated $175,000 in an annuity. He wants the largest possible monthly benefit for as long as he lives. Which option should he choose?
Life Income The Life (Life Only or Straight Life) Income option provides the largest possible payment to the annuitant because the insurance company offers no residual values upon his death.
All of the following are ways in which an annuity can be classified based on its premium funding method, except:
Reinvestment Single, Flexible, and Periodic are the ways in which an annuity is classified based on premium payment.