Annuity Suitability Certification Training Final Exam
A 62-year old is planning his retirement income strategy and just learning about the benefits of delaying Social Security payments until age 70. He would like to discuss the alternatives for filling in that income gap. If he plans to retire in 8 months, which of the following should be considered as an alternative? A. A variable annuity B. An index annuity C. A fixed deferred annuity D. A fixed immediate annuity
A. A variable annuity
The tax consequences of the assignment of an annuity are most similar to the taxation of A. Annuitization for joint life B. There are no tax consequences when an annuity is assigned C. Annuity surrender D. A gift of the annuity to a spouse
A. Annuitization for joint life
Surrender charge waivers for withdrawals are typically available for all of the following EXCEPT A. Education expenses B. Unemployment C. Natural disaster D. Diagnosis of a terminal illness
A. Education expenses
Of annuity contracts that are sold today, which type accounts for the fewest sales? A. Fixed single premium immediate annuities B. Index deferred annuities C. Fixed deferred annuities D. Variable deferred annuities
A. Fixed single premium immediate annuities
Your client wishes to start an income stream before her next birthday. She would like to ensure that her monthly payments benefit from strong performance in the market and is willing to accept market risks. An annuity that may suit this client's objectives is an: A. Index annuity B. Deferred variable annuity C. Variable SPIA D. Fixed SPIA
A. Index annuity
In an annuity, the trade-off for a bail-out provision is A. Much higher fund charges B. Much lower minimum guarantees C. Much lower interest rates paid to the annuity owner D. Lower commissions paid to the writing agent
A. Much higher fund charges
All of the following are features of qualified annuities EXCEPT: A. Earnings accumulate on a tax-deferred basis. B. There are contribution limits that vary with the type of plan C. All distributions are fully taxable as ordinary income D. Payments to fund the annuity are after-tax dollars
D. Payments to fund the annuity are after-tax dollars
All of the following fees apply to both fixed and variable annuities EXCEPT: A. Administrative fees B. Mortality charges C. Fund expenses D. Premium taxes
D. Premium taxes
Annuity contracts include all of the following features EXCEPT: A. Death benefits during accumulation B. Favorable capital gain taxation on payouts C. Tax-deferred accumulation D. Multiple payout options
B. Favorable capital gain taxation on payout
During a discussion of variable annuity features, your customer tells you that she is interested in a short surrender charge period in case she changes her mind about her purchase, in spite of higher M&E charges. The share class that is appropriate in this situation is: A. A-share B. B-share C. L-share D. X-share
C. L-share
An investor purchased a variable annuity from a financial adviser in her bank's investment services department. In the event of financial failure of the insurer, the annuity contract value is A. Protected by FDIC coverage B. Protected by SIPC coverage C. Protected by the state guaranty association D. Not protected
C. Protected by the state guaranty association
In adopting provisions of the NAIC Suitability in Annuity Transactions Model Act, many states have added protective standards to ensure appropriate practices in the sale of annuities for which of the following groups? A. Low-income investors B. Inexperienced investors C. Senior investors in particular D. Unsophisticated investors
C. Senior investors in particular
In explaining the benefits of an index annuity to a customer, you could say that an index annuity. A. May subject an annuity owner to a small amount of downside risk only. B. Will not result in a lose of principal C. Will subject only a limited amount of the purchase payments to potential loss. D. Is more conservative than a fixed annuity but less conservative than a variable annuity
D. Is more conservative than a fixed annuity but less conservative than a variable annuity
An individual plans to purchase a fixed annuity that includes a premium bonus in the first year, and would like to know what would happen if he needed to surrender the annuity before the end of the term. His agent tells him that in that situation, most annuities with a premium bonus will do which of the following? A. React no differently than other fixed annuities when a surrender is requested. B. Charge an additional fee to offset the agent commissions C. Cannot be surrendered prior to the end of the term. D. May recapture some or all of the interest due to the bonus.
D. May recapture some or all of the interest due to the bonus.
The assumed interest rate (AIR) is relevant for establishing the unit value for which of the following types of annuities? A. Fixed SPIA's B. Index annuities C. Fixed MYG annuities D. Variable Annuities
D. Variable Annuities
An index annuity has participation rate of 90% and a rate cap of 6%. If the S&P gains 10% over the prior year, the percentage of the interest rate credit to the contract is: A. 10% B. 6% C. 5.4% D. 0%
A. 10%
Which of the following provisions allows a contract owner to surrender the contract without surrender charges if renewal rates fall below a certain level? A. Bailout B. Recapture C. Return of premium D. Exclusion
A. Bailout
During a period when the underlying index of an index annuity drops in value, what is the worst outcome the annuity owner can expect? A. Interest credits of the minimum guaranteed rate only B. Loss of 20% of premium C. Loss of 5% of premium D. Only 10% interest credited
A. Interest credits of the minimum guaranteed rate only
When appropriately executed, a 1035 exchange always results in A. A preservation of the cost basis of the original contract B. A waiver of surrender charges on the new contract C. A release of contract proceeds to the contract owner without current tax liability D. Current recognition of any gains in the old contract
C. A release of contract proceeds to the contract owner without current tax liability
A 45- year old customer is leaving his old job for a new employment opportunity. He would like to transfer his 401k balance into a index annuity to take advantage of the potential for growth with no downside risk. Which of the following does the agent need to tell his client? A. Distributions from the account will be partially taxed based on an exclusion ratio B. The 401k can be rolled into a qualified annuity without a taxable event C. Earnings will grow on a tax-exempt basis D. Earnings will be currently taxable as ordinary income
C. Earnings will grow on a tax-exempt basis
Which of the following riders does NOT guarantee an income benefit? A. Guaranteed Lifetime Withdrawal Benefit (GLWB) B. Guaranteed Minimum Income Benefit (GMIB) C. Guaranteed Minimum Withdrawal Benefit (GMWB) D. Guaranteed Minimum Accumulation Benefit (GMAB)
D. Guaranteed Minimum Accumulation Benefit (GMAB)
All of the following statements about annuity taxation are true EXCEPT: A. When an annuity is gifted to a non-spouse, the giver of the gift may be subject to income taxes and gift taxes. B. The IRS 10% penalty on early withdrawals does not apply at death. C. Corporations benefit from tax deferred growth D. When an annuity is gifted to a spouse, there is no tax implication.
D. Life with period certain
With regard to banding available on index annuities, which statements is correct? A. Shorter terms typically receive higher rates credits B. Higher purchase payments typically receive lower rate credits C. Lower purchase payments typically receive higher rate credits. D. Typically, larger purchase amounts receive higher rate caps.
D. Typically, larger purchase amounts receive higher rate caps.
Most financial experts recommend that the maximum amount of retirement assets that are used to purchase an immediate annuity should be limited to A. 65% B. 25-40% C. No more than 5% D. 80-90%
B. 25-40%
A retiree who owns an SPIA wishes to receive the highest possible payment over the next 20 years. Which of the following payout options will best respond to this requirement? A. 20-year period certain annuity B. Life with 20-year period certain C. 20-year inflation adjusted annuity D. Life with installment refund annuity
A. 20-year period certain annuity
You have met with a client to review his questions about purchasing a deferred annuity for accumulating retirement savings. Which of the following statements is appropriate to share with the client? A. Annuities guarantee protection against all forms of retirement risk. B. Annuities always outperform all other retirement accumulation products C. Annuities are a suitable accumulation vehicle for financial objectives. D. Annuities are long-term savings products appropriate for long-term investment horizons
C. Annuities are a suitable accumulation vehicle for financial objectives.
To which of the following individuals would you advise the purchase of a flexible premium deferred annuity? A. Matt would like to purchase the annuity through periodic payments, but needs to start receiving income payments within one year. B. Sam would like to purchase the annuity with a single payment, but does not need the benefit until 2 years from now. C. John would like to allocate a portion of his monthly paycheck into the annuity, and would like to start the payouts at retirement. D. Tom would like to purchase an annuity with a lump sum and would like to start receiving benefits immediately.
C. John would like to allocate a portion of his monthly paycheck into the annuity, and would like to start the payouts at retirement.
The feature known as Deferred Income Option (DIO) or Longevity Insurance allows A. For periodic liquidity events during the income stream B. For a cash refund when requested by the annuitant C. For an effective gap strategy D. The annuitant to defer income to a future date, such as age 85
D. The annuitant to defer income to a future date, such as age 85
When explaining annuities to potential customers, which of the following statements would be correct? A. There is a limit on the amount that may be transferred under 1035 exchange B. The annuity owner and the annuitant cannot be the same person C. The IRS 10% penalty on early withdrawals does not apply to nonqualified annuities D. They may be suitable for IRA rollovers
D. They may be suitable for IRA rollovers
A multi-year guarantee annuity with a stated interest rate guaranteed for the same length of time as the surrender charge period is functioning much like a: A. Simplified employee pension B. CD C. Equity index annuity D. Market value adjusted annuity.
B. CD
Your client wishes to follow a disciplined investment strategy of investing the same amount of money every month regardless of the market's performance. Which of the following variable annuity features may appeal to this client? A. Model portfolio B. Dollar cost averaging account C. Voluntary rebalancing program D. Target allocation
B. Dollar cost averaging account
When explaining the features of a variable annuity to a prospective purchaser, the agent should discuss all of the following features EXCEPT: A. Ability to transfer values among subaccounts B. History of rate cap renewal C. Fees and expenses D. Flexibility in investment choices
B. History of rate cap renewal
Your customer contacts you with tax questions about taking a lump-sum partial withdrawal from her nonqualified annuity contract. You explain that: A. Interest and earning are considered withdrawn first for tax purposes. B. The full amount withdrawn will be taxable as ordinary income C. There will be no taxation on a partial withdrawal D. The purchase payments are considered withdrawn first for tax purposes.
B. The full amount withdrawn will be taxable as ordinary income
All of the following are elements that are used to determine the amount of a SPIA payment EXCEPT: A. The size of the initial premium B. The payment period C. The bailout rate D. The interest rate
C. The bailout rate
An annuity contract is assigned as collateral for a loan. What are tax consequences of this collateral assignment? A. The assignee pays income tax on the full amount of the assignment B. The portion attributable to earning is not subject to taxation, but the portion attributable to purchase payments is immediately taxable to the assignor. C. The portion attributable to after-tax premium contributions is not subject to taxation, but the portion attributable to earnings is immediately taxable to the contract owner. IRS penalties will also apply to earnings if the owner is under age 59 1/2 D. No taxes due
C. The portion attributable to after-tax premium contributions is not subject to taxation, but the portion attributable to earnings is immediately taxable to the contract owner. IRS penalties will also apply to earnings if the owner is under age 59 1/2
All of the following are reasons that support using annuities for qualified retirement funds EXCEPT: A. Income payments that begin at retirement can be guaranteed for life. B. Some contracts allows flexible contributions C. Using an annuity for qualified funds adds the benefits of tax deferral which is not normally available for qualified funds D. Death benefits ensure full payment of all contributions to beneficiaries if death occurs before distribution.
C. Using an annuity for qualified funds adds the benefits of tax deferral which is not normally available for qualified funds
An 80-year old retiree has asked for your help to determine how to re-invest the proceeds of a maturing CD. This retiree seems somewhat confused by financial terminology and annuity contract features but responds to the idea of higher rates and the opportunity for improved investment returns. Which of the following is most similar to the CDs with which he is most familiar? A. A fixed multi-year guarantee (MYG) annuity B. A variable annuity C. A fixed immediate annuity D. An index annuity
A. A fixed multi-year guarantee (MYG) annuity
Annuities are viewed as an important supplement to Social Security for all of the following reasons EXCEPT: A. Supplementing Social Security is not necessary as the benefits are adequate for a robust retirement B. Individuals are being advised to delay Social Security benefits to age 70 C. Life expectancies have increased dramatically D. Fewer corporations are maintaining pension plans for their employers
A. Supplementing Social Security is not necessary as the benefits are adequate for a robust retirement
A variable annuity hardship withdrawal that avoids annuity contract surrender charges are typically available for all of the following circumstances EXCEPT: A. Nursing home confinement B. Education expenses C. Natural disaster D. Unemployment
B. Education expenses
In which of the following features is there the greatest difference between fixed annuities and index annuities? A. Tax deferral B. The way interest to be credited to the annuity is calculated C. Issue ages D. Minimum purchase amounts
B. The way interest to be credited to the annuity is calculated
Which of the following benefits applies when a beneficiary is named to receive proceeds at the death of an annuity owner? A. The estate of the annuity owner will pay a reduced rate of estate taxes. B. The beneficiary can defer taxation on the proceeds indefinitely. C. Although the benefits will be taxed immediately at the owner's death, a 10-year forward averaging can be applied. D. The annuity proceeds will pass without the time or cost of probate.
C. Although the benefits will be taxed immediately at the owner's death, a 10-year forward averaging can be applied.
The amount of the gain in the index that is credited to an index annuity is determined by which of the following? A. Bailout provision B. Vesting provision C. Participation rate D. Bonus rate
C. Participation rate
Some insurance companies encourage larger purchase payment deposits by: A. Increasing the length of the surrender charge period B. Reducing administrative fees on lower purchase payments C. Paying higher interest rates on larger deposit amounts D. Eliminating the surrender charge on larger payments
C. Paying higher interest rates on larger deposit amounts
The type of variable annuity death benefit rider that locks in contract gains on contract anniversaries is known as: A. Low water mark B. Enhanced earning benefits C. Ratchet D. GMIB
C. Ratchet
The standard death benefit included with most variable annuity contracts is known as the A. GMAB B. GLWB C. GMWB D. GMDB
D. GMDB
When recommending the sale of an annuity that involves a replacement, the agents must do all the following EXCEPT: A. Disclose all advantages and disadvantages of the replacement sales. B. Document the client's needs analysis and resulting recommendation C. Have the client sign the Notice Regarding Replacement D. Guarantee that the client will not lose money in the annuity the agent is selling
D. Guarantee that the client will not lose money in the annuity the agent is selling
Which of the following riders provides a guaranteed percentage of withdrawal for the life of the annuitant? A. Guaranteed Minimum Accumulation Benefit (GMAB) B. Guaranteed Lifetime Withdrawal Benefit (GLWB) C. Guaranteed Minimum Income Benefit (GMIB) D. Guaranteed Minimum Withdrawal Benefit (GMWB)
D. Guaranteed Minimum Withdrawal Benefit (GMWB)
A couple plans to retire in 6 months. They would like to purchase an annuity that ensures the payment of benefits that begin at retirement and continue for as long as they both live. The annuity best suited to provide these benefits is a: A. Immediate annuity with a life with cash refund payout option. B. Flexible premium deferred option with a 20- year period certain C. Flexible premium deferred annuity with a joint life and survivor payout option D. Immediate annuity with a joint life and survivor payout option
D. Immediate annuity with a joint life and survivor payout option
An applicant would like to purchase a fixed annuity that will pay benefits for her entire life, but pay a lump-sum death benefit to a beneficiary at her death if the entire contract's purchase amount has not been paid out. This applicant should consider which of the following annuitization options? A. Joint live with survivor B. Life with refund C. Fixed-period installment D. Life with period certain
D. Life with period certain
Which of the following statements best describes death benefits on fixed annuities? A. They are not commonly included with fixed annuities B. There is usually a separate charge to purchase them. C. They are only available during the annuitization phase. D. They typically pay no less than 100% of the purchase payments during the accumulation period
D. They typically pay no less than 100% of the purchase payments during the accumulation period
