Annuities

What are fixed annuity premium deposits invested in? a. the insurer's separate account b. the insurer's general account c. a stock market index d. the state's insurance guaranty fund

B

When Clyde elected to annuitize his variable annuity contract, he was credited with 100 annuity units in his equity subaccount. The market took a downswing, and Clyde's equity account lost value. To recalculate the current value of his subaccount, the insurer will reduce the number of annuity units associated with this subaccount. a. True b. False

B

"Using capital to purchase income" defines which of the following? a. annuitization b. asset allocation c. tax deferral d. market timing

A

All of the following are common conditions for which an annuity's surrender charge is waived EXCEPT: a. financial hardship b. death c. entry into a nursing home d. disability

A

Mary, age 65, elects to annuitize her $150,000 variable annuity under a straight life income option. As specified in her contract, the AIR is 5 percent, which produces an initial payment of $950. If the values in her contract net a constant return of 5 percent, what will Mary's next income payment be? a. $950 b. $998 c. $1,050 d. $1,110

A

Nonqualified annuities can be exchanged for qualified long-term care contracts under the tax-free exchange rules of Section 1035. a. True b. False

A

The annuitization of a nonqualified annuity's funds is subject to taxation in accordance with: a. an exclusion ratio b. capital gains treatment c. Section 1035 rules d. stepped-up basis treatment

A

The basis for the interest credited to Angela's annuity is the growth of the S&P 500. What kind of annuity does Angela own? a. an indexed annuity b. a traditional fixed annuity c. a variable annuity d. a value-adjusted annuity

A

The suitability standards of FINRA Rule 2330 apply to both the purchase of a variable annuity as well as the recommendations for subaccount investments. a. True b. False

A

Which of the following best defines the annuity purchase rate? a. the amount of monthly income that each $1,000 of the contract's values will generate b. the average interest rate that the contract earned between the issue date and the annuitization date c. the initial premium necessary to produce $1,000 of monthly income d. the guaranteed minimum rate of return that will be credited to the contract during its accumulation phase

A

Which statement is true of FINRA Rule 2330? a. It imposes specific sales practice standards and supervisory requirements on variable annuity transactions. b. It prohibits the sale of variable annuities to anyone older than 65. c. It disallows the use of variable annuities in qualified plans. d. It bans the exchange of any variable annuity purchased before 1982.

A

At what point are an annuity's earnings subject to income tax? a. when they are credited to the contract b. when they are withdrawn from the contract c. as they accumulate within the contract d. never

B

Deferred annuity interest earnings are never subject to income taxation, regardless of whether the earnings are withdrawn or kept within the contract. a. True b. False

B

Franklin is using his variable annuity to support his income. Every quarter, 20 accumulation units are taken from his contract and then converted into cash at their then current value. What kind of distribution has Franklin elected? a. fixed annuitization b. variable annuitization c. systematic withdrawal d. income optization

C

Mary purchased a variable annuity for $50,000. Upon her death ten years later, the contract was valued at $115,000. Assuming her contract provided for the standard death benefit, what amount does her beneficiary receive? a. $50,000 b. $65,000 c. $115,000 d. $0

C

What are premium deposits in a variable annuity's subaccounts applied to purchase? a. shares b. annuity units c. accumulation units d. rights

C

What is the primary difference between fixed and variable annuities? a. the frequency of the product's premium payments b. the option for annuitization c. the ways in which their funds are invested for growth d. provisions for death benefits

C

Which of the following correctly indicates the current tax treatment of annuity withdrawals? a. tax free b. capital gains c. LIFO d. FIFO

C

Which of the following is a distinguishing feature between fixed and variable annuities? a. Fixed annuities can only be funded with the payment of a single premium. b. Only variable annuities provide for annuitization. c. Fixed annuities allow owners to direct their premium payments into stock and bond accounts. d. Variable annuity principal and earnings are not guaranteed by the insurer

D

The primary reason a consumer should purchase an annuity is to provide a death benefit to his or her heirs. a. True b. False

B

Felipe owns an annuity that credits a rate of interest that is based on annual percentage changes in the S&P 500. If the index change is positive, the insurer will credit 90 percent of the percentage change to his contract for that year; if the index change is negative, the insurer will credit zero percent to the contract for that year. What kind of annuity does Felipe own? a. a traditional fixed deferred annuity b. an indexed deferred annuity c. a variable deferred annuity d. an immediate fixed annuity

B

One of the disadvantages to deferred annuity contracts is that they require annuitization as the only means to access the contract's full value. a. True b. False

B

Sal owns a fixed annuity that he purchased with a $28,000 premium payment. Three years into the contract, its values have grown to $32,000, and Sal wants to take a withdrawal. Assuming the contract has a standard free withdrawal provision, how much can Sal withdraw without incurring a surrender charge? a. $0 b. $3,200 c. $4,000 d. $28,000

B

The NAIC Annuity Suitability model regulation applies only to fixed and indexed annuities; FINRA Rule 2330 applies to variable annuities. a. True b. False

B

To what market segment does the current NAIC Suitability in Annuity Transactions model regulation apply? a. only to prospects who are age 65 and older b. to any prospective annuity buyer c. only to prospects or clients who do not follow a producer's product recommendation d. only to those who apply for fixed annuities

B

When Geneva purchased her variable annuity, she directed $500 of her initial premium into the product's Subaccount A. The unit value at the time of her purchase was $10. How many Subaccount A units did Geneva acquire? a. 5 b. 50 c. 500 d. 5,000 The number of subaccount units purchased is determined by dividing the premium deposit by the value of an accumulation unit.

B

Which annuity design is appropriate for a consumer who seeks a way to grow and accumulate funds for the future? a. immediate annuity b. deferred annuity c. both a and b d. neither a nor b

B

When are annuity owners limited as to the amount of premium they can contribute to their contracts? a. when any portion of the premiums is allocated to the insurer's separate account b. when the contract is the funding vehicle for a qualified plan c. when the owner is also the annuitant d. at no time, because annuities never impose limits on contributions

D

According to the standards of both the NAIC Annuity Suitability model and FINRA Rule 2330, which of the following is the standard for a suitable annuity recommendation? a. knowledge beyond all doubt that the recommendation is suitable b. an educated opinion that the recommendation is suitable c. best-guess projection that the recommendation is suitable d. reasonable basis to believe that the recommendation is suitable

D

In which of the following circumstances would a producer have a suitability requirement under the NAIC Annuity Suitability model regulation? a. The producer initiates a client meeting but does not recommend a product. b. The buyer does not provide accurate suitability information. c. The buyer decides to purchase an annuity that is not based on a producer's recommendation. d. The buyer decides to exchange an existing annuity for a new annuity under the rules of Section 1035.

D

Seventy-year-old Patrice elects to annuitize her fixed deferred annuity under a straight life option. She had originally invested $25,000 in the contract; the contract was worth $80,000 at annuitization. According to IRS life expectancy tables, Patrice will live for 16 years. Her annual annuity income is $6,800. How much of that is taxable? a. $1,564 b. $2,125 c. $4,674 d. $5,236

D

When is a variable annuity CDSC charge imposed? a. when the contract is annuitized b. when the contract pays out its death benefit c. when the owner deposits funds into the contract d. when a withdrawal is made during the surrender charge period

D