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Questions and Answers
What annuity payout option provides for lifetime payments to the annuitant but guarantees a certain minimum term of payments, whether or not the annuitant is living?
What annuity payout option provides for lifetime payments to the annuitant but guarantees a certain minimum term of payments, whether or not the annuitant is living?
- Straight life income
- Installment refund option
- Life with period certain (correct)
- Joint and survivor
Considering the two contracts, Darlene would receive death benefits totaling?
Considering the two contracts, Darlene would receive death benefits totaling?
- $25,000 (correct)
- $30,800
- $15,000
- $40,000
When a cash value life insurance policy is converted into an annuity in a nontaxable transaction, that event is generally known as?
When a cash value life insurance policy is converted into an annuity in a nontaxable transaction, that event is generally known as?
- A 1035 exchange (correct)
- A modified endowment
- A rollover
- A pension enhancement
What annuity payout option did Albert select if the insurance company agrees to pay the difference to Albert's daughter if he dies before the annuity has paid back as much as he put into it?
What annuity payout option did Albert select if the insurance company agrees to pay the difference to Albert's daughter if he dies before the annuity has paid back as much as he put into it?
Which of the following statements regarding equity index contract factors is most CORRECT?
Which of the following statements regarding equity index contract factors is most CORRECT?
The interest credited to an equity indexed annuity is tied to increases in?
The interest credited to an equity indexed annuity is tied to increases in?
Which of the following is a fair comparison between life insurance and annuities?
Which of the following is a fair comparison between life insurance and annuities?
In a cash refund option, if the annuitant dies before the annuity fund is depleted, where does the balance go?
In a cash refund option, if the annuitant dies before the annuity fund is depleted, where does the balance go?
Which one of the following is not characteristic of an annuity?
Which one of the following is not characteristic of an annuity?
The purpose of the exclusion ratio is to?
The purpose of the exclusion ratio is to?
Logan accumulated $60,000 in his annuity. He is receiving $600/month, each unit is worth $3. How many units does he receive each month?
Logan accumulated $60,000 in his annuity. He is receiving $600/month, each unit is worth $3. How many units does he receive each month?
Premium paid for a variable annuity less expenses equal which of the following?
Premium paid for a variable annuity less expenses equal which of the following?
An immediate annuity contract provides for?
An immediate annuity contract provides for?
An insured bought an annuity for $80,000. The insured died after receiving only $50,000. The balance is paid in a lump sum to the insured's beneficiary. This is known as the?
An insured bought an annuity for $80,000. The insured died after receiving only $50,000. The balance is paid in a lump sum to the insured's beneficiary. This is known as the?
Classification of Variable Annuities includes?
Classification of Variable Annuities includes?
During the payout period of an annuity, the interest portion of the payment is?
During the payout period of an annuity, the interest portion of the payment is?
The dollar value of an annuity unit is based on?
The dollar value of an annuity unit is based on?
The monthly amount of benefit an annuitant receives is based on all of the following factors EXCEPT the?
The monthly amount of benefit an annuitant receives is based on all of the following factors EXCEPT the?
Variable annuity sales are subject to which of the following regulations?
Variable annuity sales are subject to which of the following regulations?
Which forms of payment can be used to purchase an annuity?
Which forms of payment can be used to purchase an annuity?
All of the following statements regarding annuities are correct EXCEPT?
All of the following statements regarding annuities are correct EXCEPT?
Joanna and her husband, Tom, have a $40,000 annuity that pays them $200 a month. When Joanna dies, the annuity payments cease. This is an example of?
Joanna and her husband, Tom, have a $40,000 annuity that pays them $200 a month. When Joanna dies, the annuity payments cease. This is an example of?
In a straight life income option, if the annuitant dies before the annuity fund is depleted, where does the balance go?
In a straight life income option, if the annuitant dies before the annuity fund is depleted, where does the balance go?
All of the following under a 1035 Exchange are allowable EXCEPT?
All of the following under a 1035 Exchange are allowable EXCEPT?
Variable annuity payouts are adjusted based upon which of the following?
Variable annuity payouts are adjusted based upon which of the following?
The benefit paying period of an annuity is called?
The benefit paying period of an annuity is called?
All of the following are true of an accumulation period of an annuity EXCEPT?
All of the following are true of an accumulation period of an annuity EXCEPT?
Which of the following statements regarding annuity payout options is NOT correct?
Which of the following statements regarding annuity payout options is NOT correct?
What period refers to the point at which the annuity ceases to be an accumulation vehicle and begins to generate regular benefit payments?
What period refers to the point at which the annuity ceases to be an accumulation vehicle and begins to generate regular benefit payments?
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Study Notes
Annuities Overview
- Annuity payout options include several types, such as "life with period certain," guaranteeing payments for a set time regardless of the annuitant's lifespan.
- A straight life annuity provides lifetime income but ceases payments upon the annuitant's death, with no benefits extending to beneficiaries.
Death Benefits and Annuities
- Upon annuitant's death, a beneficiary typically receives the full face value of associated life insurance policies.
- The cash refund option ensures beneficiaries receive a lump-sum payment if the annuitant dies before receiving the equivalent of their initial investment.
1035 Exchange and Tax Regulations
- A 1035 Exchange allows tax-free transfers between annuity contracts or between life insurance and annuity contracts (with specific restrictions).
- Interest earned during the payout period of an annuity is taxed as ordinary income, impacting the total net payment received.
Annuity Units and Payments
- Variable annuities come in immediate and deferred forms and are influenced by accumulation units and annuity units, determining monthly payments based on investment performance.
- The dollar value of an annuity unit is calculated based on the total number of units, providing a method to measure periodic benefit levels.
Characteristics and Payout Options
- Annuities help manage financial risk, particularly the risk of outliving one’s retirement savings, and involve life insurance principles such as mortality tables for calculations.
- Key payout options include:
- Joint and full survivor annuity: Payments continue for the surviving spouse.
- Cash refund option: Provides remaining balance to beneficiaries if the annuitant passes before full investment is returned.
Regulations and Purchase Methods
- Variable annuity sales are subject to dual regulation by the SEC and state insurance regulations, ensuring compliance with financial standards.
- Annuities can be funded through a single lump-sum payment or a series of payments, providing flexibility in investment.
Accumulation and Annuity Periods
- The accumulation period refers to the time during which investment payments grow and accumulate interest, while the annuity period denotes when payments begin post-accumulation.
- During the accumulation period, contributions are made by the contract holder and earn tax-deferred interest until the payout phase begins.
Misconceptions about Annuities
- Not all annuity contracts require fixed, level funding payments; they can also accommodate flexible premium payments.
- A cash refund option ensures the beneficiary receives the remaining balance of the initial investment, not necessarily the full investment plus interest.
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