NC Life Insurance - Annuities Chapter Quiz

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 Joint life annuity settlement option pays benefits to two or more annuitants, but stops upon the death of the first

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 The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from money market funds to growth stock funds to precious metal funds, Therefore, the annuitant assumes the risk of the investment.

An insurance company forwards fixed 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 to its policyholders? A. 2% B. 2.5% C. 3% D. Whatever interest rate the company deems appropriate

B. 2.5% Insurance companies promise guaranteed minimums on the fixed annuities (2.5% in this scenario). This means that if the investments draw less than that, the company will have to pay 2.5% anyway. If the investments earn over 2.5%, the company will pay that excess

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. Joint and survivor B. Pure life C. Life with guaranteed minimum D. Installment refund

B. Pure life A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors

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 Owners of annuities can be individuals or entities like corporation and trusts, but the annuitant must be a natural person whose life expectancy is taken into consideration for the annuity

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 Joint & Survivor option guarantees an income for two or more recipients that none of them can outlive.

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 While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person

Under a Straight Life Annuity, if an annuitant dies before the principal amount is paid out, the beneficiary will receive which of the following? A. Nothing; the payments will cease B. Guaranteed minimum benefit C. The amount paid into the annuity D. The remainder of the principal

A. Nothing; the payments will cease Straight or pure life annuity will pay a specific amount of income for the remainder of the annuitant's life. This payment will cease at death, regardless of the amount of principle that hasn't been paid out. There is no refund or payments to survivors.

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 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 shorter specified period of time depending on the benefit payment option selected.

The annuity owner dies during the accumulation period with 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 state government B. The cash value will be paid to the annuitant's estate C. The premium value will be paid to the annuitant's estate D. All benefits will be forfeited

B. The cash value will be paid to the annuitant's estate 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.

Which of the following is TRUE regarding the accumulation period of an annuity? A. It is limited to 10 years B. It is a period during which the payments into the annuity grow tax deferred C. It is also referred to as the annuity period D. It is a period of time during which the beneficiary receives income

B. It is a period during which the payments into the annuity grow tax deferred The "accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.

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 the 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 the benefits The owner is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant (if different from the owner) or the beneficiary

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 options are exhausted D. the annuitant will select how big the payments will be

A. the payments will stop when the annuitant dies Installments for a fixed amount option has no life contingencies. A specific amount of benefits will be paid until funds are exhausted whether or not the annuitant is living

Annuities can be used to fund which of the following? A. Estate creation B. Retirement plans C. Variable life insurance D. Group life insurance

B. Retirement plans Since annuities are a popular means to provide retirement income, they are often used to fund qualified retirement plans.

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 Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.