Chapter 5 (Annuities)

Question 1

How soon can income payments begin in an immediate annuity?

Answer 1

No later than 1 year from the time of annuity purchase

Question 2

How are annuities classified depending on how many lives they cover?

Answer 2

Single life and multiple life annuities

Question 3

What causes a variable annuity benefit to vary?

Answer 3

The annuity’s underlying investments

Question 4

What are the two types of refund life annuities?

Answer 4

Cash refund and installment refund

Question 5

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

Answer 5

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

Question 6

Who bears the investment risk in a fixed annuity?

Answer 6

The insurer

Question 7

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

Answer 7

Variable annuity

Question 8

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

Answer 8

Immediate and deferred

Question 9

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

Answer 9

Straight life

Question 10

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 10

Flexible premium deferred annuity

Question 11

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 11

Pure life

Question 12

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

Answer 12

Equity indexed annuity

Question 13

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

Answer 13

Annuitant’s estate

Question 14

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 14

Annuity

Question 15

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

Answer 15

The number of payments that purchase the annuity

Question 16

What is the main reason for purchasing an annuity?

Answer 16

To provide income that the annuitant cannot outlive

Question 17

Who receives income payments from an annuity?

Answer 17

Annuitant

Question 18

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

Answer 18

Annuitant

Question 19

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

Answer 19

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

Question 20

Who possesses all the rights in an annuity?

Answer 20

Annuity owner

Question 21

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

Answer 21

Amount of premium

Question 22

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

Answer 22

Beneficiary

Question 23

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

Answer 23

No sooner than 1 year after the annuity purchase

Question 24

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 24

Joint life annuity

Question 25

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

Answer 25

Life income with period certain

Question 26

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

Answer 26

Annuitization period

Question 27

What are accumulation units in annuities?

Answer 27

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

Question 28

What are the two phases of an annuity?

Answer 28

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

Question 29

Can a business or a corporation be an annuitant?

Answer 29

No, an annuitant must always be a natural person.

Question 30

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

Answer 30

Immediate annuity

Question 31

What type of license(s) is/are required in order to sell variable annuities?

Answer 31

A life insurance license and a securities license

Question 32

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

Answer 32

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 33

How long is income paid under a pure life annuity?

Answer 33

Only for the life of the annuitant

Question 34

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 34

Current

Question 35

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

Answer 35

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