s7 c 10
An investor purchased a fixed annuity twenty years ago from a top-rated insurance company. The investor is now considering whether to annuitize on a straight life basis, or to take a lump-sum settlement and invest it elsewhere. If economists are now forecasting an extended period of significant inflation, which of the following is the greatest risk facing the investor if she chooses to annuitize?
Purchasing-power risk
Which of the following is an expense or charge NOT normally associated with a variable annuity?
Redemption fees
A client has annuitized a variable annuity which has an AIR of 4% but was sold to her by an RR who used an illustration containing a 7% growth rate. This past period, the separate account grew at a rate of 4%. The client's next payment will:
Remain the same
A 65-year old individual invested $240,000 into a variable annuity, which has since grown to $400,000. If she wants to withdraw $150,000, what's the tax implication of taking the withdrawal?
She will be taxed on $150,000 as ordinary income.
When a beneficiary receives the death benefit from a variable annuity, the amount received is:
Taxable above the cost basis to the beneficiary
Which of the following factors is NOT used in determining the value of an annuity unit?
The assumed interest rate
When engaging in a 1035 exchange an individual should be aware that:
The exchange is not a taxable event but the new annuity may come with additional restrictions
An individual annuitizes his variable annuity contract and begins receiving payments using a straight life settlement option; however, she later decides that a joint and last survivor life annuity settlement option is more appropriate. Which of the following is TRUE concerning this situation?
The individual is not permitted to change the settlement option.
Which of the following statements is TRUE concerning periodic payment variable annuities?
The number of a client's annuity units never changes
Under what circumstances will the payout from a variable annuity increase?
The performance of the separate account exceeds the AIR
A person purchased a variable life contract one year ago. Although the contract performed well, the policyholder has never really understood the policy and has informed his RR that he wants out of the contract. What option is available to the policyholder?
The policyholder may be able to convert his policy into a whole life contract that is offered by the same firm.
Which of the following statements is TRUE regarding separate accounts and general accounts?
The subaccounts of a variable annuity may include both types of accounts.
A 65-year-old individual has retired and started receiving money from a qualified variable annuity. Which TWO of the following statements are TRUE concerning the distributions from the annuity? 1. It is treated as ordinary income for tax purposes 2. It is fully taxable at the investor's tax bracket 3. It is treated as a capital gain for tax purposes 4. It is partially taxable at the investor's tax bracket
1 and 2
When comparing variable annuities to fixed annuities, investment risk is assumed by the: 1. Investor in a variable annuity 2. Annuity company in a variable annuity 3. Investor in a fixed annuity 4. Annuity company in a fixed annuity
1 and 4
Which TWO of the following statements are TRUE regarding a variable annuity accumulation unit? 1. It is an accounting measure used to determine an owner's interest during the pay-in phase. 2. It is an accounting measure used to determine an owner's interest during the payout phase. 3. The value of the units will remain fixed. 4. The value of the units will fluctuate.
1 and 4
The prospectus for a variable annuity contract: 1. Must be filed with the SEC 2. May be delivered electronically 3. Must provide full and fair disclosure 4. Must detail all sales charges and ongoing expenses of the contract
1, 2, 3, and 4
A registered representative has recommended the purchase of a variable annuity to a customer who subsequently completes the application. Which TWO of the following statements are TRUE concerning the application? 1. The contract is forwarded directly to the insurance company 2. The contract is forwarded to the representative's Office of Supervisory Jurisdiction (OSJ) 3. A principal need not approve the transaction 4. A principal must approve the transaction within 7 business days
2 and 4
An investor has been making payments into a variable annuity for the last 20 years. The investor decides to annuitize and selects a straight-life payout. Which TWO of the following statements are TRUE? 1. The investment risk is assumed by the insurance company 2. The investment risk is assumed by the customer 3. The amount of the payment to the customer is guaranteed by the insurance company 4. The amount of the payment to the customer is not guaranteed
2 and 4
Which TWO of the following statements are TRUE regarding a variable life policy? 1. Death benefits are calculated monthly 2. Death benefits are calculated annually 3. Policy loans are taxable 4. Policy loans are charged interest
2 and 4
According to industry rules, how long should investors wait between 1035 exchanges of variable contracts?
36 months
According to suitability rules, 1035 exchanges should occur not more frequently than once every:
36 months
Within how many days of receipt must a principal approve or disapprove an application to purchase a variable annuity?
7 business days
An individual considering moving to the payout phase of a variable annuity should understand the payments will:
Be based on the performance of the subaccount products in the separate account
During annuitization, a variable annuity owner will receive payments that are based on a:
Fixed number of annuity units
A customer owns a variable annuity that has a life annuity payout option with a 20-year period certain. If the customer dies after 14 years of payments:
Future payments will continue for six years to a named beneficiary
An investor might take advantage of a Section 1035 exchange if:
Her investment objectives have changed and she is unable to obtain new benefits by switching to another subaccount in the same contract
Which of the following calculations describes the payout on a variable annuity?
A fixed number of annuity units multiplied by a variable dollar amount
In order to sell variable annuities to clients, a person must hold which of the following?
A life insurance license and securities registration
The most appropriate buyer for a variable life insurance policy is/are:
A person with an understanding of investments who can tolerate risk
Which of the following investors is not a typical candidate for a variable annuity?
A senior investor
Dividends and capital gain distributions in a variable annuity are:
Allowed to accumulate on a tax-deferred basis
The growth in the value of a variable annuity is:
Allowed to accumulate on a tax-deferred basis
An accumulation unit in a variable annuity contract is:
An accounting measure that's used to determine the contract owner's interest in the separate account
According to FINRA, the maximum sales charge on a variable annuity contract is:
An amount that is fair and reasonable
Suitability in variable annuity transactions does not apply in which of the following situations?
An employee's contribution to his 403(b) plan
The payout from a variable annuity contract is:
Dependent on the investment returns that are earned by the annuitant
An individual is in the third year of accumulating an interest in a variable annuity with a deferred sales charge. A registered representative recommends a switch to a newly created variable annuity with a larger number of subaccount choices, also offered with a deferred sales charge. Which TWO of the following statements would be considered TRUE of this switch: 1. FINRA would probably consider the switch unsuitable 2. FINRA would probably not consider the switch unsuitable, since both annuities are offered with a deferred sales charge 3. The switch would be taxable if it qualifies as a 1035 exchange 4. The switch would not be taxable if it qualifies as a 1035 exchange
I and IV
A 57-year old father was in the accumulation phase of his variable annuity when he passed away. What are the tax implications if the annuity is inherited by his son?
If liquidated, any amount above the cost basis is taxed as ordinary income to the son.
Which of the following annuity settlement options would provide the longest stream of income over the lives of two individuals?
Joint and last survivor annuity
A person who purchases an annuity with an expectation that she may consider exchanging into another better performing annuity after three years, should consider purchasing:
L shares
An individual has annuitized her variable annuity contract and has begun receiving payments. She decides she would rather start a withdrawal program, no longer annuitizing the contract. As her registered representative, you may inform her that:
Once annuitized, she may no longer make a change
A client has reached retirement age and decides to annuitize her nonqualified variable annuity. What amount of the payments made to her would be considered her cost basis?
Only the amount she paid when accumulating units, since reinvestments of distributions were in pretax dollars
An individual has invested in a nonqualified variable annuity. If she withdraws the entire value of the annuity, the tax treatment will be:
Ordinary income on the amount in excess of the original investment
A variable annuity contract holder dies during the accumulation period. In this situation, which of the following statements is TRUE regarding the tax consequences?
Proceeds in excess of cost are taxable as ordinary income to the beneficiary
An investor is approaching the age she would decide to annuitize a contract. She is considering different settlement options and wants you to explain the benefit of selecting a straight-life payout option. You would explain that this option is attractive because it:
Provides an equal amount each month for the investor's lifetime
If the purchaser of a non-qualified annuity dies at the age of 56, which of the following BEST describes the tax impact?
There is no penalty assessed and the difference between the amount invested and the death benefit is taxable at ordinary income tax rates
An annuitant is receiving payments from a variable annuity and, at the time of his death, his beneficiary receives a lump-sum payment. The annuity payout option is:
Unit refund life annuity
All of the following choices are defined as types of investment companies, EXCEPT:
Variable annuities
As far as variable annuities are concerned, which of the following statements is TRUE?
Variable annuity nonqualified separate accounts are registered under the Investment Company Act of 1940
An investment contract that offers life insurance benefits plus participation in a portfolio of securities is called a:
Variable life insurance contract
While saving for her retirement, a variable annuity owner investing $1,000 per month will buy a:
Varying number of accumulation units
