Chapter 6- Annuities - Structure, Design, Funding, Premiums, Payments

Which of the following annuities is characterized by flexible premium payment amounts and frequency, and an annuity period that begins 20 years after the annuity purchase date?

(FPDA), both the premium payment amount and frequency are flexible, and like all deferred annuities, the payout phase begins one year or several years after the annuity purchase date

ABC Insurer sells a $500,000 single premium immediate annuity to four different people. Who receives the largest check?

60-year old male

All of the following are true of the straight life income option for annuities, EXCEPT:

A beneficiary will receive any balance of the annuity upon the annuitant's death.

Immediate annuities must be purchased with

A single premium

The amount of each monthly payment for a straight life annuity is based on the annuitant's:

Age, sex, and amount of money in the annuity upon annuitization

Premiums for a joint and survivor life annuity are based on the annuitants':

Ages and sex

Many factors are taken into consideration when determining the premiums for an annuity. These factors include all but:

Annuitant's ethnicity

All of the following are factors that determine the annuity payout amount, EXCEPT:

Annuitant's marital status

Which of the following is not a factor used to determine the annuity payout amount?

Annuitant's sexual orientation

During which annuity phase is the annuitant's age important?

Annuity phase

All of the following are true of the life with period certain annuity payout option, EXCEPT:

Any balance in the annuity fund after the period certain ends is refunded to a beneficiary.

Alex purchases a single premium immediate annuity on March 1. If he elects monthly annuity payments, when will he receive his first annuity payment?

April 1st

Once an annuity payout option is chosen and payments begin, the payout option:

Cannot be changed.

Lucas purchased an annuity for himself. He begins to receive annuity payments. If the amount of premium in the annuity has not been paid out upon his death, then his grandson will receive the balance. What type of annuity does Lucas have?

Cash Refund option

What are the two types of refund life annuity payout options?

Cash refund and installment refund

Collin buys a fixed deferred annuity. Upon annuitization, he chooses the life annuity with period certain payout option. Collin will receive $3,000 each month with a 15-year certain period. If Collin dies after seven years, how much will his beneficiary receive?

Collin's beneficiary will receive eight years worth of $3,000 monthly annuity payments. This works out to $288,000 (15 _ 7 = 8 years remaining in the period certain. $3,000 _ 12 months per year = $36,000. $36,000 _ 8 = $288,000).

All of the following are true regarding deferred annuities, EXCEPT:

Deferred annuities must be purchased with multiple premium payments.

Of the following, who will receive the largest monthly annuity benefit from a $100,000 single premium immediate annuity with 5-year period certain: Jane, age 40; Paul, age 40; or William, age 70?

Each receives the same amount

Which of the following is not a life annuity payout option?

Fixed amount installment

All of the following are true of the installment refund annuity payout option, EXCEPT:

If the annuitant lives longer than expected, depleting the principal funds in the annuity, the beneficiary will receives payments upon the annuitant's death.

The two broad categories of annuities are ________ and ________ based on when the annuity phase begins.

Immediate; deferred

All of the following statements regarding the taxation and interest of deferred annuities are true, EXCEPT:

Interest is taxable in the year it is earned.

Annette and John are married and have an annuity in which payments will reduce to 2/3 of the original amount upon the death of the first annuitant. What annuity do they have?

Joint and 2/3 life annuity

Which of the following annuity payout options pays benefits to two annuitants, where payments will be made to the surviving annuitant for life upon the first annuitant's death?

Joint and survivor

Of the following annuities, for which do the annuity payments cease when the last of several annuitants dies?

Joint and survivor life annuity

Which of the following annuities ceases payment upon the death of the last of several annuitants?

Joint and survivor life annuity

Which of the following in not an annuities classification that fits into the structure and design of an annuity?

Law of large numbers

Which annuity payout option guarantees income that the annuitant cannot outlive?

Life annuity

Of the following, who will receive the largest monthly annuity benefit from a $100,000 single premium immediate annuity?

Man, age 70

Which of the following is not true about the impact of the annuitant's sex on the premium payments?

Men live more dangerously so their premiums are higher.

What are straight life, cash refund, installment refund, life with period certain, and joint and survivor when pertaining to annuities.

Payout options

Which annuity does not provide guaranteed income for life, but provides income payments for a fixed period of time?

Period Certain Option

Which annuity payout option has a distinct beginning and ending?

Period certain

Adrian bought an annuity for herself. After a few years, she begins to receive annuity payments. When she dies, her best friend will receive the balance of principal. Which of the following annuities best describes the annuity Adrian bought?

Refund life

In which of the following types of annuities does the payment period begin immediately after the annuity is purchased?

SPIA

Jodeen purchases an annuity with a $40,000 lump-sum payment on July 15. She begins to receive monthly annuity payments on August 15. What type of annuity did she buy?

SPIA

Of the following types of premiums, which is used to buy an immediate annuity?

Single

What type of premium is used to purchase an immediate annuity?

Single

Jacob begins to receive periodic annuity payments. Upon Jacob's death all annuity payments cease and the balance in the annuity is retained by the insurer. What annuity does Jacob have?

Straight life

Charlie is single and retired from his job as a physics professor at the age of 75. Charlie does not have any dependent family members. Which annuity will provide Charlie with the largest monthly income?

Straight life annuity

Nick is single and retired at the age of 55. He does not have any dependent family members. Nick wants to purchase an annuity that will give him the largest monthly income. What annuity would you recommend to him?

Straight life annuity

Annuity payout options take effect:

Upon annuitization

A penalty imposed by the insurer if a contract owner partially or entirely surrenders a deferred prior to annuitization is called a:

Withdrawal charge

Which of the following statements regarding the amount of each annuity payment is true?

Women typically receive lower annuity payments.