A.D. Banker Ch.5

Jill wants to know how much to put into her annuity in order to receive the greatest benefit payment amount. Which of the following will provide her with the largest monthly income regardless of the settlement option selected?

$1,000,000

Gloria needs to use her annuity as a long-term savings plan rather than as a short-term tax shelter, otherwise she will incur a ____% penalty tax against any taxable withdrawals prior to age 59 1/2.

10%

All of the following are situations in which the insurer is likely to waive any annuity surrender charges, except:

1035 exchange into a life insurance policy

If a corporation purchases a Group Deferred Annuity, what do the employees get?

A certificate

An annuity that is purchased with contributions made as often and in whatever amounts the owner wishes, subject only to the insurer's minimums and maximums, is called:

A flexible premium annuity

Which of the following would not be a situation in which the annuity premium dollars would qualify for an income tax deduction for the premium payor?

A married couple purchasing a flexible premium non-qualified deferred annuity to supplement their future retirement income

A Variable Annuity is different from a Fixed Annuity because it must be sold with which of the following documents?

A prospectus

The annuity pay-in period is also referred to as the ________ period.

Accumulation

The period of time from the first deposit into an annuity to the selection of a settlement option is considered the ___________ period.

Accumulation

The period of time over which a single sum or periodic deposits grow within an annuity is referred to as the:

Accumulation Period

With a Life Income Payment Option, what happens at the annuitant's death?

All payments cease

All of the following terms are the same regardless if the policy is life insurance or an annuity, except:

Annuitant

The __________ is the person on whose life the annuity contract's income benefit is based.

Annuitant

Which product, offered by insurers is specifically designed to allow an individual's savings to be distributed to him/her periodically over his/her entire life, regardless of how long he/she lives?

Annuities

A systematic distribution of accumulated funds, either over one's life, or a specified period, is the definition of a(n):

Annuitization Option

The period of time over which distributions of the accumulated balance is made to the annuitant is referred to as the:

Annuitization Period

The pay-out period of an annuity is also referred to as the ______ period.

Annuity

All of the following are factors for a producer to consider when determining annuity suitability for a client, except:

Commission

Surrender charges typically ____________ over time.

Decrease

What type of annuity is designed to start benefit payments many years from now and subjects the owner to investment risk?

Deferred variable

Which of the following annuities is known for having the highest surrender charge percentages and the longest surrender charge time periods?

Indexed Annuities

Annuities are classified in all of the following ways, except:

Issuer of the annuity

W and Y are annuitants of an annuity. W dies and Y receives 1/2 of the amount coming into their household when both were alive. They must have elected which of the following settlement options?

Joint and 1/2 Survivor

Mr. & Mrs. Smith received monthly benefits from their annuity, and upon Mr. Smith's death, Mrs. Smith receives a reduced amount. What annuity payment option did they choose?

Life Income Joint and Survivor

The annuity benefit or payment option requiring the greatest amount of capital per $1,000 of benefit is:

Life Income Joint and Survivor 100%

Instead of electing to annuitize the annuity, what is another common option chosen?

Lump sum distribution

All else being equal, which of the following will receive the largest income benefit payment from an annuity?

Male age 80

Annuity product 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

Which of the following annuities will be directly impacted by rising and falling interest rates?

Market Value Adjustment

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

Upon annuitizing an annuity, all of the following factors help in determining the amount of the income benefit payment, except:

State of residence

An insurer considers all of the following when determining the fixed annuity payments, except:

Stock market value

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

All of the following are TRUE regarding a Variable Annuity, except:

The number of annuity units received upon annuitization, and the unit value, remain level

What is an annuitant, in regard to an annuity policy?

The party whose life the policy's benefits are based on

What is the difference between the cash value and the cash surrender value of an annuity?

The surrender charge

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

How can an annuity help fund college for a child or grandchild in an tax-efficient and effective manner?

Through systematic withdrawals or proper settlement option selection

What is the primary purpose of an annuity?

To protect against outliving one's income

Which of the following statements is TRUE regarding Fixed Annuities?

Upon annuitization, the annuity payments are level

Which of the following is TRUE regarding Indexed Annuities?

Values and benefits may increase, but not decrease

All of the following annuities can be sold without a securities registration/license, except:

Variable

During the accumulation phase of a(n) ____________ annuity, premium dollars buy more accumulation units.

Variable

If an annuity uses units instead of dollars to determine the value of the policy, then it is a(n) _________ annuity.

Variable

The insurer generally assumes the investment risk in all of the following annuities, except:

Variable

Which annuity has its income benefit payments related to an assumed interest rate (AIR)?

Variable

Which annuity is the only one regulated by the SEC, FINRA, and State insurance departments?

Variable

Which of the following Annuities is generally not backed by the insurer's general account assets?

Variable

Which of the following Annuities would potentially be the most negatively impacted by the overall stock market falling in value?

Variable

Which of the following will receive the smallest monthly income benefit check if an annuity is annuitized?

50 year old female

Unless an exception applies, a tax penalty is assessed for withdrawals from annuities of tax-deferred earnings prior to age ______.

59 1/2

An individual purchased a fixed annuity with flexible premiums. When she annuitized the policy, she chose the Life Income 10-Year Certain option. What would the beneficiary receive if the annuitant dies 4 years after the annuity payout began?

6 more years of payments

Which of the following interest rates credited to an annuity will provide the larger monthly income benefit payment amount all other factors remaining the same?

6%

Sam wants to know at what age he should select a settlement option in order to receive the highest monthly income benefit payment. Which of the following will meet his objective regardless of the settlement option selected?

Age 70

K owns a variable annuity with an assumed interest rate of 4%. If the actual performance of the separate account(s) is 5%, the effect on this month's income benefit check will be such that it:

Becomes Higher

K owns a variable annuity with an assumed interest rate of 4%. If the actual performance of the separate account(s) is 3%, the effect on this month's income benefit check will be such that it:

Becomes lower

What is the name of the person named in the annuity contract to potentially receive any residual benefits?

Beneficiary

What do both life insurance and annuities have in common?

Both are products based on a mortality table

The owner of an annuity may do all of the following, except:

Determine the contract's interest credit

Before taking an application for an annuity, it is important to:

Determine the suitability of the product to the intended purchaser

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

One of the benefits of an annuity in regards to taxes is:

Earnings are tax deferred during the accumulation phase

A(n) __________ annuity has its interest credit linked to the positive performance of a stock market index.

Equity-Indexed

Which annuities are directly affected by a 'bullish' stock market?

Equity-Indexed and Variable

In what interest rate environments is a bailout provision most likely to be exercised by the annuity owner?

Falling

Annuities may be funded with either a lump sum or a ______ premium basis.

Flexible

What is the only way an annuity can pay out income tax free benefit payments?

Fund a Roth IRA and make a qualified distribution

The _________ gives the owner of a variable annuity the ability to withdraw a maximum percentage of the annuity value until the initial investment amount has been recouped.

Guaranteed minimum withdrawal benefit

Under what conditions would there be a limit as to how much premium can be deposited into an annuity?

If the annuity is funding a qualified retirement plan and the IRS imposes a limit on that type of plan

If Alan owns a market value adjustment annuity (MVA) and interest rates have fallen since he has taken out the policy, what impact will this have on the policy values?

In effect, the policy values would have increased

Which of the following Annuities can it be said that it has 'upside potential, but no downside risk' when it comes to the stock market overall?

Indexed

Ralph has selected an annuity benefit or payment option where, upon annuitization, the annuity will pay a benefit for as long as either Ralph or a co-annuitant are alive. Ralph has elected which of the following benefit or payment options?

Life Income Joint and Survivor

Which Payment Option pays an income for the life of the annuitant or for a specified period, whichever is longest?

Life Income with Period Certain

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

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

An annuity owner can change all of the following in an annuity, except:

Mortality table

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

A(n) ________ has all of the contractual rights in an annuity contract.

Owner

Similar to life insurance, this party has all of the rights in the annuity contract. This party is referred to as the:

Owner

How can an annuity payout an income benefit income tax free?

Purchase the annuity within a Roth IRA account

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

K owns a variable annuity with an assumed interest rate of 4%. If the actual performance of the separate account(s) is 4%, the effect on this month's income benefit check will be such that it:

Remains the Same

Annuities are primarily designed to accumulate funds for a(n) _________ fund.

Retirement

At the time of her retirement at age 62, Jolene chose a Life Income Payment Option to have her annuity distributed. Five years later, when her health declines, she needs the distribution to be increased. How is this accomplished?

She cannot change the distribution once commenced

If Charlotte wishes to cash out her annuity at age 58 after having it for over 20 years, what should she know about prior to doing it?

She will face income tax consequences and tax penalties

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 lump sum of money is placed into an account from which the annuitant will draw periodic benefits beginning more than a year from the date of purchase. This describes a:

Single Premium Deferred Annuity

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

Which of the following annuities does not have a traditional accumulation phase?

Single premium immediate

_____________ means ensuring that an annuity addresses a prospective owner's needs and financial objectives at the time of the sale.

Suitability

To encourage annuity holders to leave funds in the policy until retirement, insurance companies can assess a(n) __________ for withdrawals.

Surrender charge

___________ are allowed as a way to access the annuity policies values without having to elect a settlement option while still maintaining the policy in force.

Systematic withdrawals

_____________ are allowed as a way to access annuity values without having to elect a settlement option or surrender the contract.

Systematic withdrawals

Deferred annuities are normally purchased to defer ___________.

Taxes on any policy earnings

All of the following are traits of a Fixed Annuity, except:

The actual rate of interest credited will be based on the state-published interest rate index

Which of the following annuities offers the best opportunity to offset the effects of purchasing power loss over the long-run?

Variable

Which of the following annuities typically offers no guarantees?

Variable

Which of the following is not a fixed type of an annuity?

Variable

When does the annuitization period begin?

When the contract owner elects to convert the annuity into an income benefit payment

Harry, the annuitant of a non-qualified tax deferred annuity with $40,000 cash value chooses the Life Income with Refund Payment Option when he annuitizes to policy. After receiving $1,000 each month for 80 months, Harry suddenly dies. How much will his beneficiary, his wife Lucille, receive?

Zero