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My Annuities
| Question | Answer |
|---|---|
| For a single premium deferred annuity, the ___________________ is the time between the purchase date and the date when benefits begin. | accumulation phase |
| What is not a right and/or responsibility of the annuitant? The annuitant pays the premiums The annuitant chooses the beneficiary Both of the above Neither of the above | both In most cases the annuitant is also the contract owner. The contract owner pays premiums and chooses the beneficiary. In the event that the annuitant is not the contract owner, he/she would not pay premiums nor would he/she select the beneficiary. |
| Insurance companies use 5 major factors to determine annuity premiums. What are the 5 major factors? | the annuitant's age and sex, the assumed interest rate, the periodic income amount and payment guarantees, and also, company expenses (or load) |
| what is not a true statement about deferred annuities? -has annuity periods that begin sometime in the future -can have a one-time premium payment -payout period must begin within 12 months of purchase -can have multiple premium payments | A deferred annuity payout period must begin within 12 months of purchase |
| Which of the following would be most likely to purchase an immediate annuity? Newly married couple Man who received a settlement for injuries occurring from an automobile accident Couple about to adopt a baby All of the above. | Man who received a settlement for injuries occurring from an automobile accident |
| Mrs. Kupchock, who is 78 years old, has received the benefits of her husband's life ins policy. Although she is frail, her agent has recommended that she invest the proceeds in an immediate annuity. Her grandson does not think it is her best option. Why? | An immediate annuity is a suitable option for a healthy individual who probably will live longer than most people in his/her age group. Because her life expectancy is not very good, she will probably lose most of her investment |
| disadvantage to deferred or immediate annuities: Once the annuity is purchased - there is no turning back - the annuitant loses access to the principal. | disadvantage to immediate |
| disadvantage to deferred or immediate annuities: The guaranteed income may be less than could be earned in another investment | disadvantage to immediate |
| If the annuitant does not outlive the actuarial predictions, substantial monies could be lost is a disadvantage to_________ annuities | immediate |
| In the event of a downturn in the market, the benefit payments remain level, is an example of an advantage of _______________ | immediate annuities |
| For those considering an immediate annuity, what is not an advantage of this type of investment? | loan privileges. Annuities have no loan privileges. Once the money is put into an annuity, the annuitant usually has no access to it. |
| All periodic premium annuities are _______________. | deferred |
| Margaret began receiving monthly benefits from her annuity in November of 2011. In May of 2012 her aunt passed away and she received an inheritance. She would like to provide a guaranteed income stream for twenty years. What are her options? | She can purchase a life annuity certain |
| Annuities offer various premium payment options. Which of the following is not an annuity premium payment option? Flexible premium Indexed premium Level premium Single premium | indexed premium |
| The owner of an annuity can stop making premium payments during the accumulation period without losing the value that has accumulated in the annuity. The right to the cash value that has accumulated in the annuity is called the - | non-forfeiture option |
| Annuities have a variety of payout options. All of the following are annuity payout options EXCEPT: Cash (lump sum) Annuity certain Flexible payment Refund life annuity | flexible payment |
| Izzy has a lot of money in his annuity and wants to remodel his home before retirement. He would like to make a policy loan to pay for the home upgrade. What are the main considerations when he decides how to structure the loan? | Annuity plans do not have loan provisions |
| Mary has reached age 65 and she wants to begin a monthly income. She has funded her annuity with after tax contributions, and she wants to know what her tax liability will be going forward. Her agent explains that her tax will be calculated using: | exclusion ratio |
| What is the exclusion ratio | When a person annuitizes a non-qualified annuity, part of the money returned is considered principle and part is considered earnings. The exclusion ratio is used to determine which part of the payment will be excluded from income tax liability. |
| Nick has paid a large lump sum of cash to the insurance company for an immediate fixed annuity. That money will be invested by the insurance company in what fund? | the company's general fund |
| A fixed annuity may offer any of the following income options EXCEPT: A life income without refund at death A joint income for three individuals A 10 year certain and life An installment refund annuity | joint income for three individuals a joint can be for 2 people not 3 |
| Frank has set up a monthly payment from his fixed annuity. He knows that he will receive $2,000 per month until his death. Frank's family has a history of living well into their 90s. What is Frank's biggest risk if he lives that long? | inflation |
| Earl has deposited a large lump sum with an insurance company and he will begin receiving monthly payments next months. Earl has purchased: | single premium immediate annuity |
| When considering a variable annuity, the prospect should review: | The mortality charge, The expense charge, The investment fee for each separate account |
| A variable annuity has a minimum guaranteed income benefit? | no |
| a variable annuity has a Accumulation units in the accumulation phase | yes |
| a variable annuity has Annuity units in the income phase | yes |
| does a variable annuity have Varying sub-accounts or investment | yes |
| Variable annuities have all features EXCEPT: -Account values accumulate tax deferred -There are usually a variety of investment choices -Money can be withdrawn at any time without penalty -Optional riders are available for an extra charge | Money can be withdrawn at any time without penalty |
| To have an approved presentation of a variable annuity the prospect must receive what document | A prospectus and an approved illustration |
| In order to sell variable annuities, the sales person must be qualified. What is required to qualify to sell variable annuities | Registration with FINRA and an insurance license from the state |
| Variable annuity withdrawals are taxed on what basis? | FIFO (first in first out) |
| Can an equity-indexed annuity will have the following feature: A choice of multiple stock indices on which to base a return | yes |
| Can an equity-indexed annuity will have the following feature: A crediting method for gains | yes |
| Can an equity-indexed annuity will have the following feature: Dividends from the index chosen if any are paid | no |
| Can an equity-indexed annuity will have the following feature: A cap rate to limit returns | yes |
| An equity-indexed annuity will provide which benefits? | A guarantee that the account balance will not decline below the initial deposit |
| A market value adjusted annuity differs from a fixed annuity in which ways? | A market rate annuity will usually credit a higher interest rate than a fixed annuity |
| Since the insurance company will generally pay a higher rate on a Market Rate annuity (MVA). What is the disadvantage to the buyer? | There is a surrender charge to change to a fixed annuity if interest rates change significantly downward |
| An ordinary deferred annuity with a decreasing term life insurance rider is called a | retirement income annuity |
| The owner of an insurance policy and the insured are usually the same person. However, sometimes the policy owner is a different person. This is known as | third party |
| There are many types of retirement plans. Which of the following is not a qualified plan? Defined contribution (401(k)) Defined benefit (Pension Plan) Executive Bonus SEP IRA | Executive Bonus |
| Additional Tax qualified retirement plans may include any of the following EXCEPT: Traditional IRA Plan Keogh plan 403 (b) Plan 501 ( c) (3) plan | 501 ( c) (3) plan is an organization that is chartered as a non-profit corporation, and that is not a retirement plan. |
| Bill has several emps that he would like to retain for the long term good of his company. He has paid in the maximum allowed on his qualified retire plan. What is a possible choice that would provide both Bill and his key employees an additional benefit? | deferred compensation plan |
| t or f Qualified plans have specific rules or participation and non-qualified plans do not | true |
| t or f Contributions to a non-qualified are deductible on a current basis | false |
| t or f Highly compensated employees may be limited by qualified plans and non- qualified plans do not have the same limits. | true |
| t or f Qualified plans are subject to annual discrimination tests and non-qualified plans are not. | true |
| If You or your spouse are not covered by a company sponsored qualified plan can you deduct an IRA contribution from your taxable income | yes |
| Can a roth contribution be deductible | no, never |
| roth or traditional: Money accumulates tax deferred in the account | roth |
| roth or traditional: Money must be withdrawn under specific guidelines to avoid penalties. | roth |
| roth or tradional: account holder is not required to make required withdrawals after age 70 and one-half | roth |
| Max is leaving his current employer for a new position. He has accumulated a tidy sum in his 401 (k) plan. What is his best option to maintain control over his account? | Max should have his funds transferred directly to a new trustee without taking possession of the funds. |
| A 1035 exchange is allowed on any transactions EXCEPT: A whole life policy to a universal life policy A universal life policy to a whole life policy A life insurance policy to an annuity An annuity to a life insurance policy | An annuity to a life insurance policy |
| why no 1035 exchange from an annuity to a life insurance policy | A 1035 exchange is allowed from like products to like products. different tax rules for insurance and annuities |
| Mr. Brown knows that his social security benefits are determined using a formula based on his earnings. What are the 3 traditional benefits of the social security program? | -Monthly disability benefits for disabled workers and their dependents -Monthly benefits for spouses of retired workers -Lump sum death benefit |
| Mrs. Jurandi owns a small bakery. What is her social security tax rate? | 12.40% |
| Gail surrendered her life insurance policy for its cash value. Why was some of the cash value she received taxable? | The cash received exceeded the premiums paid |
| If the value of each annuity is $6, and the annuitant (Andrew) receives $1,800 per month, how many annuity units does Andrew receive? | 300 |
| what is a benefit provided by an annuity contract that makes it different from other investments? | An annuity contract provides income for life |
| Jose purchased an annuity for $20,000 and the expected return is $40,000. If the annuity pays $600 per month, what portion of the $600 is taxable? | $300 (half of it) |
| A variable annuity separate account will be invested in which of the following types of investments? | equity investments |
| Carla has invested in an annuity to have money at retirement. What factors will determine the amount that Carla will receive at retirement? | The interest rate The total capital The payout option selected |
| T or F regarding life income annuity: If the annuitant is older, the payment period is longer | false |
| T or F regarding life income annuity: If the annuitant is older, the payment is larger | true |
| T or F regarding life income annuity: If the annuitant is younger, the shorter the payment period | false |
| T or F regarding life income annuity: If the annuitant is older the monthly payment is smaller | false |
| The payout option for an annuity is selected by the owner of the annuity. Can the owner of the policy change this option | no, Once the payout option is selected, it cannot be changed after payments begin |
| ___________ determine(s) the value of a separate account in an annuity during payout. | annuity units |
| Sophie has a variable annuity. She wants to know when she reaches retirement, what percent of the total value of all accumulations units credited to her account will be converted to annuity units. | %100 |
| What is the benefit-paying period of an annuity called? | annuity period |
| does age of beneficiary impact annuity benefit | no |
| does age of annuitant impact annuity benefits | yes |
| does interest and amount of proceeds impact annuity benefits | yes |
| What is the primary function of an annuity | income for life |
| Clancy has bought a single premium immediate annuity. He must start taking payments _____. | within 12 months |
| What will Perry, an annuitant, receive if he selects a life with period certain as his annuity option? | He will receive a payout for life or a fixed number of years - whichever is last |
| Sasha purchased an immediate annuity. How soon can the payment begin? | within a year or less from the time it was purchased |
| How is the benefit amount that an annuitant receives from a variable annuity determined? | Number and Value of annuity units |
| George has a fixed annuity. How does the change in interest rates during the annuity period caused by increased interest rates affect his payout? | payout remains the same for life |
| What kind of annuity or annuities promises two annuitants full income for both their lifetimes? | joint and survivor life annuity |
| James wants to have his annuity pay him until he dies, with no payments to anyone after his death. Which of the following annuities will best serve his wishes? | straight life annuity |
| When does a deferred annuity begin to pay benefits? | At a specified number of years after purchase but no sooner than at least one year after purchase |
| An annuity is used to protect the annuitant against which risk? | risk of outliving your income |
| James is an annuitant receiving monthly payments from a variable annuity under a joint and 2/3rds to the survivor option. What will the surviving annuitant receive when the primary annuitant dies? | Monthly payments for life of a dollar value of two thirds of the annuity units that were previously being distributed |
| Who is responsible for regulating the separate account of a variable annuity? | SEC |
| The ____________ is used to calculate the tax-free portion of an annuity payment | exclusion ratio |
| Averaging out the cost of units during pay-in period is referred to as | dollar cost averaging |
| Who are regulated by NASD when selling variable annuities? | brokers and dealers |
| For what period of time does a joint and survivor income option on an annuity pay? | it ceases when the second annuitant dies |
| Who is responsible for regulation of variable annuities? | SEC and state insurance department |
| Can Vicki, who has a valid life insurance license in the state, also sell variable annuities? | Yes if she has a Series 6 or Series 7 license |
| When does the fixed income, paid to two or more annuitants at the same time, under a joint and survivor annuity, stop? | at the death of the last annuitant |
| An annuitant bought an immediate annuity at the age of 60. When she turned 65, she decided that she wanted to stop the annuity, get a refund of the remaining amount, and move to Brazil. What does the annuity company do? | continue sending monthly checks |
| The benefit amount that an annuitant receives from a variable annuity is determined by | the number and value of annuity units |
| Before variable annuity benefits can be paid out, accumulation units must be converted to: | annuity units |
| Tax Sheltered Annuity plans are available to employees of the following type of organizations: | Public school systems and other "Not for profit" groups |
| Daniel accumulated $80,000 in his annuity. He is receiving $800/month and each unit is worth $2.00. How many units does he receive each month? | 400 |
| Variable Annuities were created in order to do | To protect against inflation |
| A Variable Annuity Company's separate account is regulated by which of the following: | SEC |
| Which of the following retirement plans does NOT automatically qualify for a federal income tax deduction. Single premium deferred annuity SEP 403b Corporate pension plan | Single premium deferred annuity |
| Who is entitled to a paid-up deferred variable annuity? | Annuitants who discontinue premium payments |
| Rich wants to have income for life and he also wants his wife Pam to continue to receive income for the rest of her life upon his death. Which should Rich choose? | joint and survivor annuity |
| If an annuity owner receives $2000.00 a month, and value of each annuity unit is $2, how many units does he receive monthly? | 1000 |
| t or f annuities are designed to completely replace income after retirement | false |
| Jacob wants to receive income for the rest of his life. He wants his daughter to continue to receive the income for her life - after he dies. Which of the following should Jacob choose? | joint and survivor |
| Which of the following is NOT often included in variable annuity options. A lump sum payout An income for life A list of beneficiaries A specified period of time | a lump sum payout |
| Variable annuities guarantee ___________. | against outliving your income |
| What is the period called from when the annuity contract is issued to when the payments start? | accumulation period |
| Accumulation units must be converted into ________ before variable annuity benefits can be paid out. | annuity units |
| Anthony is continuing to buy when the stock market levels are fluctuating. This activity, which tends to average out the cost of units during the pay-in period, is called - | dollar cost averaging |
| Brad purchased a fixed annuity for $40,000 that has a guaranteed benefit of $50,000. What will be the exclusion ratio? | 80% |
| Who is responsible for the regulation of variable life insurance? | SEC and state insurance department |
| In regards to characteristic of a "joint and survivor" annuity True or False: A variable monthly lifetime income for two people based upon the performance of the annuities mutual funds. | true |
| In regards to characteristic of a "joint and survivor" annuity True or False: The payout may be reduced to the survivor to allow more income while both are alive | true |
| In regards to characteristic of a "joint and survivor" annuity True or False: The company cannot use the sex of the individuals as a payout factor | false, The actuarial tables say women live longer than men, therefore the company can use the sex of the individual as a payout factor. |
| In regards to characteristic of a "joint and survivor" annuity True or False: A predictable monthly income for life for two people based upon an interest rate in effect at the time it is annuitized. | true |
| Under a variable annuity policy, when will a paid-up deferred variable annuity be issued? | when premium payments are discontinued |
| What must happen before the payout phase begins on an annuity? | Accumulation units must be converted to annuity units |
| How is an immediate annuity purchased? | with a lump sum payment |
| Which of the following is the annuity option which will not cover life's contingencies? Period Certain Cash refund 10-year life certain Straight life | period certain |
| Kimberly works for a non-profit, charitable organization. What distinct class of retirement plans is available to Kimberly and other employees of certain nonprofit charitable organizations? | a tax sheltered annuity |
| In a variable annuity, who is responsible for regulating the separate account? | SEC |
| can deferred annuities have flexible premiums | yes |
| can deferred annuities have level premiums | yes |
| T or F With a level premium, a fixed amount is paid - in installments - until the annuity income starts. | true |
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