Annuities

Question 1

What is an annuity contract?

Answer 1

An annuity contract is a financial product that provides a series of payments made at equal intervals.

Question 2

True or False: Annuities can only be purchased with a single lump sum payment.

Answer 2

False: Annuities can be purchased with a single lump sum or through a series of payments.

Question 3

Fill in the blank: Annuities are commonly used for _____ purposes, such as retirement income.

Answer 3

income

Question 4

What are the two main phases of an annuity?

Answer 4

The accumulation phase and the distribution phase.

Question 5

Which type of annuity provides payments for a specific period?

Answer 5

Term certain annuity.

period

Question 6

Multiple Choice: Which of the following is NOT a type of annuity? A) Fixed Annuity B) Variable Annuity C) Equity Annuity D) Immediate Annuity

Answer 6

C) Equity Annuity

Question 7

What is the purpose of a surrender charge in an annuity?

Answer 7

To penalize the policyholder for withdrawing funds from the annuity before a specified period.

Question 8

True or False: Annuities are always tax-free upon withdrawal.

Answer 8

False: Annuities may be subject to income tax upon withdrawal.

Question 9

What is a deferred annuity?

Answer 9

A deferred annuity is an annuity that delays payments until a future date.

Question 10

Short Answer: Name one advantage of purchasing an annuity.

Answer 10

Provides a guaranteed income stream during retirement.

Question 11

SPDA

Answer 11

single premium deferred annuity

Question 12

PPDA

Answer 12

period premium deferred annuity

ongoing premium

Question 14

FPDA

Answer 14

flexible premium deferred annuity

Question 15

When a withdrawal is taken from an annuity, the ____ portion is taxed as ordinary income.

Answer 15

earnings

growth

Question 16

True or fales: There is an additional 10% penalty on taxable earnings if there is a withdrawal before age 59 1/2.

Answer 16

True

Question 17

The beneficiary of a deferred annuity would receive what upon the owner’s death?

Answer 17

The greater of:
* the accumulated value of the annuity or,
* the total premiums paid to that point, minus any withdrawals

Question 18

Annuity payout options fall under two categories, which are

Answer 18

1. life annuities- payments that are guaranteed to last for at least as long as the annuitant lives and;
2. temporary annuities, which do not.

Question 19

Often referred to as straight life, pure life, or life-no refund.

Answer 19

Life only option: payments stop when the annuitant dies, regardless of when. This option pays the highest monthly income amount as it only considers life expectancy of the annuitant.

Question 20

Which payout option is this?

If an annuitant dies and the total payments received are less than the amount paid for the annuity, the difference is paid to the beneficiary either as a lump sum (cash) refund or as a continuation of payments in the same amount as was being paid to the annuitant (installment refund).

Answer 20

Life with refund

Question 21

Life with period certain

Answer 21

• annuitant may select payment periods (5, 10, 20 years);
• payments are guaranteed for at least the number of years;
• if annuitant dies before end of selected period, payments continue to beneficiary for the remainder of period;
• no payments made to beneficiary if annuitant lives past the period certain

Question 22

Under this option, the insurer promises to make payments until the last survivor of two annuitants dies. The owner can choose for the survivor to receive continued payments in the same amount or lesser amount (two-thirds or one-half) of the monthly pay out.

Answer 22

Joint-life-and-survivor

Question 23

The “ “ payout option pays income until the death of the first of two or more annuitants. The monthly income is greater than other joint annuities but, survivors are left without an income.

Answer 23

Joint Life

Question 24

What are the factors that determine the payout for an annuity?

Answer 24

age, gender, payment guarantee (refund, fixed period or amount will have lower payments), and interest rate

Question 25

Fixed period and fixed amount are considered to be which types of annuities: A)life annuities; B) life-period certain annuities; C) temporary annuities; or D) joint life annuities

Answer 25

C) temporary annuities

Question 26

What is a fixed annuity?

Answer 26

A fixed annuity is a type of insurance contract that provides guaranteed regular payments to the annuitant, typically at a fixed interest rate.

Question 27

True or False: Variable annuities offer a guaranteed return on investment regardless of market performance.

Answer 27

False

Question 28

Fill in the blank: Equity-indexed annuities are linked to a _____ index, providing potential for higher returns based on market performance.

Answer 28

stock

Question 29

What is a key feature of market value adjusted annuities?

Answer 29

Market value adjusted annuities allow for adjustments in the value of withdrawals based on current interest rates, providing a balance between fixed and variable returns.

Question 30

Which type of annuity typically carries more risk due to investment in stocks and mutual funds?

Answer 30

Variable annuity

Question 31

True or false: The investment risk of a fixed annuity is borne by the insurer.

Answer 31

**True.** Fixed assets are held in insurer's general account and invested conservatively (*debt securities, fixed-rate investments, etc.*).

Question 32

Investment selections made by the owner of a variable annuity. These investments resemble mutual funds.

Answer 32

sub-accounts

Question 33

dual regulation

Answer 33

Variable annuities are regulated as insurance products and regulated as securities (SEC & FINRA).

Question 34

EIAs

Answer 34

Equity-indexed annuity; growth (*earned interest*) is linked to equity index (*typically-S&P 500*). Guaranteed minimum interest rate; backed by insurer's general account.

Question 35

What is a variable annuity?

Answer 35

A variable annuity is a type of annuity contract that allows the holder to invest in a variety of investment options, typically mutual funds, with the value fluctuating based on the performance of the investments.

Question 36

True or False: An equity-indexed annuity guarantees a minimum return while also allowing for potential gains linked to a stock market index.

Answer 36

True

Question 37

Which type of annuity generally has the highest potential for growth?

Answer 37

Variable annuity

Question 38

What is a key difference between an equity-indexed annuity and a variable annuity?

Answer 38

An equity-indexed annuity has a minimum guaranteed return tied to a stock market index, while a variable annuity's return is based on the performance of chosen investments.

Question 39

Market Value Adjusted Annuity | *modified guaranteed annuity*

Answer 39

Single premium deferred annuity with market value adjustment feature. Guaranteed rates vary based on length of commitment (long-term or short-term). Withdrawal before maturity are subject to contingent deferred sales charge (CDSC) or market value adjustment.

Question 40

The annuitant of an annuity can be compared to " " with respect to a life insurance policy.

Answer 40

*The insured*- the annuitant is the person by whose life the contract is measured.

Question 41

True or False: If the distribution is result of the annuity contract owner's death, the cash value payable to the beneficiary is income tax-free.

Answer 41

False - There are no tax-free death benefits associated with annuities, as there are with life insurance. Any portion of death benefit in excess of cost basis is considered gain and subject to taxation at distribution.