Ch. 5 (Annuities)

Question 1

In an annuity, the accumulated money is converted into a stream of income during which phase?

Answer 1

Annuitization period.

Question 2

What are the two classifications of annuities according to the time when annuity payments begin?

Answer 2

Immediate and deferred.

Question 3

In flexible premium payment annuities, the term “flexible” refers to what?

Answer 3

Amount of premium.

Question 4

An individual has a contract that will provide him with a certain amount of income for the rest of his life. However, this is not a life insurance policy. What type of contract does this person have?

Answer 4

Annuity.

Question 5

What are the two phases of an annuity?

Answer 5

Accumulation and annuitization (or pay-in and pay-out).

Question 6

What are the two types of refund life annuities?

Answer 6

Cash refund and installment refund.

Question 7

If the current interest rate on an annuity is higher than the guaranteed rate, which rate will the annuity owner receive as part of the annuity payment?

Answer 7

Current.

Question 8

What type of annuity requires an agent to have a securities license?

Answer 8

Variable annuity.

Question 9

Who possesses all the rights in an annuity?

Answer 9

Annuity owner.

Question 10

How long will an annuity with a 15-year period certain pay?

Answer 10

For the life of the annuitant unless he/she dies within the first 15 years of the annuitization period; then the payments will last for 15 years.

Question 11

What type of annuity can be purchased with a single premium?

Answer 11

Immediate annuity.

Question 12

What annuity settlement option provides income payment to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?

Answer 12

Life income with period certain.

Question 13

What is the main reason for purchasing an annuity?

Answer 13

To provide income that the annuitant cannot outlive.

Question 14

What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and ceases at the annuitant’s death?

Answer 14

Pure life.

Question 15

Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?

Answer 15

The annuitant receives payments from the annuity during the annuitization period; the beneficiary receives payments after the annuitant’s death.

Question 16

With a single payment deferred annuity, when will the annuity payments become available?

Answer 16

No sooner than one year after the annuity purchase.

Question 17

Whose life expectancy is taken into consideration in an annuity contract?

Answer 17

Annuitant.

Question 18

Can a business or a corporation be an annuitant?

Answer 18

No, an annuitant must always be a natural person.

Question 19

If an annuity provides a set amount of income for two or more persons with the income ceasing upon the first death, what type of annuity is that?

Answer 19

Joint life annuity.

Question 20

What causes a variable annuity benefit to vary?

Answer 20

The annuity’s underlying investments.

Question 21

If the annuitant dies before the annuitization period, what will the beneficiary receive?

Answer 21

Either the amount paid into the annuity or the cash value, whichever is greater.

Question 22

How are annuities classified according to how many lives they cover?

Answer 22

Single life and multiple life annuities.

Question 23

In flexible premium payment annuities, the term “flexible” refers to what?

Answer 23

Amount of premium.

Question 24

How long is income paid under a pure life annuity?

Answer 24

Only for the life of the annuitant.

Question 25

Who bears the investment risk in a fixed annuity?

Answer 25

The insurer.

Question 26

If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?

Answer 26

Annuitant's estate.

Question 27

What type of annuity credits its interest based upon an index such as the S&P 500?

Answer 27

Equity indexed annuity.

Question 28

Who receives income payments from an annuity?

Answer 28

Annuitant.

Question 29

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

Answer 29

Beneficiary.

Question 30

An annuity purchased with multiple payments that begin income payments after one year from the moment of purchase is known as what type of annuity?

Answer 30

Flexible premium deferred annuity.

Question 31

How soon can income payments begin in an immediate annuity?

Answer 31

No later than one year from the time of annuity purchase.

Question 32

What is the disadvantage of owning a fixed annuity, as opposed to variable?

Answer 32

In times of inflation, the benefit of a fixed annuity will have decreased purchasing power.

Question 33

What is the difference between a single premium and a flexible premium payment option in a deferred annuity?

Answer 33

The number of payments that purchase the annuity.

Question 34

What are accumulation units in annuities?

Answer 34

Ownership interest in the separate account (instead of buying shares, the annuity holder purchases accumulation units).

Question 35

What type of annuity is suitable for a person who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?

Answer 35

Straight life.