Unit 8
Which of the following is considered to be an advantage of annuitization? A. It guarantees income that will last for the client's lifetime. B. Once annuitized, the client's draw from the annuity is limited to the annuity payment C. A fixed, level periodic payment tends to lose buying power over time due to inflation. D. Payments under a variable annuity could be reduced if there is a declining market
A. Annuities offer a guarantee of income that will last for a client's lifetime. the other statements, while true, represent disadvantages of annuitization. Annuitization does limit liquids and flexibility.
Bob, age 60, has invested $17,000 in his non qualified variable annuity over the years. The total value has reached $26,000. He wishes to withdraw $15,000 to send his son to college. What is his tax consequence A. $6,500 is nontaxable; $8,500 is taxable B. $9,000 is taxable; $6,000 is nontaxable C. The entire amount is taxable D. the entire amount is non taxable
B. because this is a non qualified plan, the $17,000 invested is after-tax dollars. Under the TaxCode, the taxable portion is considered to be with drawn first in any lump-sum distribution. Therefore, the first dollars withdrawn are all taxable unit the amount of withdraw meets or exceeds the growth in the account. Because Bob is over 59 1/2, there is no 10% tax penalty on his withdrawal.
A 30-year-old client indicates that he needs $500,000 of live insurance coverage for the next 20 years. The lowest out-fo pocket cost would be if he purchased a A. 20-pay life policy B. 20-year level term policy C. whole life policy D. variable annuity with an extended death benefit
B. in almost all circumstance, certainly for short-to-immediate time periods, term life will be the least expensive form of insurance. A 20-pay life is permanent policy where the premiums are pain in a 20-year period rather than until death. Variable annuities are not life insurance polices even though they are issued by lice insurance companies.
A 49-year-old customer purchases a single premium deferred variable annuity. She selects a sub-account of the separate account that is composed largely of equity securities. She is assuming all of the following risks EXCEPT. A. she is not assured of the return of her invested principal B. the underlying portfolio is primarily common stocks, which have no guaranteed return C. as an investor, she can be held liable for the debts incurred by the insurance company. D. if she needs to withdraw a portion of her investment prior to reaching age 59 1/2, she may incur a 10% tax penalty
C. Purchasers of variable (or fixed) annuities have no responsibility for obligations of the insurance company. The contract holder bears the investment risk in a variable annuity. This means that the portfolio is not guaranteed to return a specified rate, and the principal invested will also fluctuate in value according to the securities held in the separate account portfolio. Wtihdrawls of earning prior to age 59 1/2, (with limited exceptions), are subject to a 10% tax penalty.
The main benefit that variable life insurance has over whole life insurance is: A. an adjustable premium B. a lower sales charge C. the availability of policy loans D. the potential for higher cash value and death benefit.
D. Premium of variable life insurance policyholders are invested in the insurer's separate account. This allows the policy holder the opportunity (though there are no guarantees) to enjoy significant returns and substantially higher cash values than are obtainable through a whole life policy.
The difference between fixed annuity and a variable annuity is that the variable annuity I. offers guaranteed return II. offers a payment that may vary in amount III. will always pay out more money than the fixed annuity IV. attempt to offer protection to the annuitant form inflation A. I and III B. I and IV C. II and III D. II and IV
D. Variable annuities differ form fixed annuities because the payments vary and are designed to offer the annuitant protection against inflation.
The difference between a fixed annuity and a variable annuity: I. Offers a guaranteed return II. offers a payment that may vary in amount III. will always pay out more money than the fixed annuity IV. attempts to offer protection to the annuitant form inflation A. I and III B. II and III C. I and IV D. II and IV
D. Variable annuities differ from fixed annuities because they payments vary and are designed to offer the annuitant protection against inflation.
