a life insurance holder lives longer than expected. She will receive the annuity's entire value in a lump-sum payment. C) The entire $10,000 is taxable as ordinary income. D)variable annuities. Reference: 12.3.3 in the License Exam. Question #40 of 48Question ID: 606800 Future annuity payments will vary according to the separate account's performance. "Variable Annuities: What You Should Know," Page 3. If the annuitant should die during that time, any death benefit would be paid to a beneficiary designated by the annuitant at the time the annuity was purchased. B)the investment portfolio is managed professionally. can be sold by someone with an insurance license only. Question #35 of 48Question ID: 606810 The investor has already paid tax on the contributions but the earnings have grown tax-deferred. The number of annuity units rises once annuitization begins. It is a variable annuity. C)such an annuity is designed to combat inflation risk. As with most retirement account options, withdrawals before the age of 59 will result in a 10% tax penalty. Future annuity payments will vary according to the separate account's performance. In a variable annuity contract, the provision that guarantees the annuitant payments for life is called the: Your answer, mortality guarantee., was correct!. Having a supplemental income stream for retirement and keeping pace with inflation should be the reasons to consider a VA as suitable, but not preservation of capital. The number of annuity units is fixed at the time of annuitization. For this potential advantage, the investor, rather than the ins. Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies. B)II and III. Reference: 12.1.2 in the License Exam, Question #23 of 48Question ID: 901858 Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both insurance and securities licenses. D)money market funds. Variable annuity salespeople must register with all of the following EXCEPT: Your answer, the state banking commission., was correct!. A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as. Only variable annuities have payout plans that provide the client income for life. \end{array} The separate account performance compared to an assumed interest rate. Value in separate account b. Accumulation units c. Death benefit d. Cash value Variable whole life policies have a guaranteed minimum death benefit. C) The entire amount is taxed as ordinary income, because it is not life insurance. a variable annuity guarantees payments for life. While variable annuities have greater potential for earnings, since their interest rate rises and falls with their underlying investments, they can lose money. a life insurance holder dies sooner than expected. The # of accumulation units is always fixed throughout the accumulation period, 2. Investment earnings of all annuities, qualified and nonqualified, are tax-deferred until they are withdrawn; at that point they are treated as taxable income (regardless of whether they came from selling capital at a gain or from dividends). Sub accounts and mutual funds are conceptually. It credits a minimum rate of interest, just as a fixed annuity does, but its value is also based on the performance of a specified stock indexusually computed as a fraction of that indexs total return. Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. This tax deferral is also true of 401(k) s and IRAs; however, unlike these products, there are no limits on the amount one can put into an annuity. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. co. will have to continue payments longer than expected. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. A customer is receiving annuitized payments from a variable annuity. Question #47 of 48Question ID: 606813 Many variable annuities invest the separate account in mutual funds. How Good of a Deal Is an Indexed Annuity? A registered person recommends the purchase of a variable annuity to one of his clients. What Are the Risks of Annuities in a Recession? Variable Annuities. A variable annuity is a type of annuity contract, the value of which can vary based on the performance of an underlying portfolio of sub accounts. You can learn more about the standards we follow in producing accurate, unbiased content in our. Which of the following statements regarding variable annuities are TRUE? When a variable annuity contract is annuitized, the number of annuity units is fixed. co., assumes the investment risk. Weight the criteria. Designed to protect against inflation. The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. Question #42 of 48Question ID: 606830 Which of the following are defined as securities? This customer has no spouse or dependents, which negates the value of the death benefit. A)There is no tax as the withdrawal is considered return of capital. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. D)each annuity unit's value is fixed, but the number of annuity units varies with time. An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both ins. D)I and IV, Universal variable life policies are insurance company products that should be purchased primarily for the insurance features they offer rather than as an investment. Reference: 12.1.2 in the License Exam. A)equity funds. B)Universal variable life policy. Life Insurance vs. Annuity: What's the Difference? You can tailor the income stream to suit your needs. Reference: 12.1.4.1 in the License Exam. D)II and III. Question #16 of 48Question ID: 606807 A) The fact that the annuity payment may increase or decrease. While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount. Your answer, The entire $10,000 is taxable as ordinary income., was correct!. C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. The growth portion is subject to a 10% penalty. The payout compared to the initial payout upon annuitization. D)I and III. B)reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. A variable annuity is a type of annuity contract, the value of which can vary based on the performance of an underlying portfolio of sub accounts. But again, the need to designate beneficiaries is not an issue for this annuitant. A security is any investment for profit with management performed by a third party. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: Your answer, changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices., was correct!. A)an accounting measure used to determine the contract owner's interest in the separate account. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. Life annuity has the largest payout because less risk is assumed by the insurance company; there is no beneficiary in the event the annuitant dies. When money is deposited into the annuity, it is purchasing accumulation units. You should now have gotten the answer to your question All of the following are characteristics of a variable annuity, except:, which was part of Insurance MCQs & Answers. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. The # of annuity units is fixed at the time of annuitization, 4. Contributions to a nonqualified variable annuity are not tax deductible. Reference: 12.1.2 in the License Exam, Question #39 of 48Question ID: 721469 C)100% tax deferred. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. Nonqualified annuities A nonqualified annuity is one purchased separately from, or outside of, a taxfavored retirement plan. This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. The separate account is NOT likely to invest in: D. Value of each annuity unit each month. Fixed annuities. a. are purchased primarily for their insurance features. Question #33 of 48Question ID: 606832 All of the following are characteristics of variable whole life EXCEPT. B)a majority vote from the shareholders is required to change the investment objectives. B)suitable regardless of funding sources The pooling is unique to annuities, and its what enables annuity companies to be able to guarantee a lifetime income. A) Age 78, retired for 20 years, lives comfortably and wants to leave all liquid assets to children, D) Age 56, available cash to invest, makes the max retirement plan contributions to an existing IRA & 401K plan. C)Corporate bonds. B)changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. A)defined contribution plans. Introducing Cram Folders! The annuity unit's value represents a guaranteed return. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? Changes in payments on a variable annuity correspond most closely to fluctuations in the: Once a customer annuitizes a variable annuity, which of the following statements are TRUE? If the separate account of a variable annuity with an AIR of 4% had actual net earnings of 8% in March, the April payment will be higher than the March payment. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. He originally invested $29,000 4 years ago; it now has a value of $39,000. The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. Single premium annuities A single premium annuity is an annuity funded by a single payment. C)number of accumulation units. The payout compared to last month's payout. Qualified Longevity Annuity Contract (QLAC): Definition, Taxes, and Example, Present Value of an Annuity: Meaning, Formula, and Example, Future Value of an Annuity: What Is It, Formula, and Calculation, Calculating Present and Future Value of Annuities, Annuity Table: Overview, Examples, and Formulas, Present Value Interest Factor of Annuity (PVIFA) Formula, Tables. Single premium annuities are often funded by rollovers or from the sale of an appreciated asset. Azanswer team is here with the correct answer to your question. C)prime rate. vote on proposed changes in investment policy. Your answer, Purchasing power risk., was correct!. A)variable annuities may only be sold by registered representatives. Fixed annuities are regulated by state insurance departments. VAs, blue chip mutual fund portfolios, ETFS & ETNs are all tied to market performance in some way and have risk characteristics that would not align in terms of suitability for this client. D)the safety of the principal invested. If a 42-year-old customer has been depositing money in a variable annuity for 5 years, and he plans to stop investing but has no intention of withdrawing any funds for at least 20 years, he is holding: Your answer, accumulation units., was correct!. The holder of a VA receives the largest monthly payments under which of the following payout options? As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. Which Earns More: Variable or Fixed Annuities? B.The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. However, a discussion should occur regarding the risks that are associated with a fixed annuity; purchasing power risk. An individual retirement annuity is an investment vehiclesimilar to an individual retirement accountthat is offered by insurance companies. Question #24 of 48Question ID: 606806 If the owner of a VA dies during the accumulation period, any death benefit will: B) be paid to the issuing company to complete the plan, C) be paid to the designated beneficiary, D) be paid to any legal heirs as recognized by the annuitant's state of domicile. A) A)not suitable Question #41 of 48Question ID: 606801 For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. The # of VA accumulation units can rise during the accumulation period when additional units are being purchased. Variable annuities are riskier than fixed annuities because the underlying investments may lose value. b. Reference: 12.2.1 in the License Exam. Reference: 12.1.4.1 in the License Exam. Must provide full and fair disclosure, 2. a variable annuity does not guarantee an earnings rate of return. 3. Reference: 12.3.2.4 in the License Exam. They are also riddled with fees, which can cut into profits. The entire amount is taxed as ordinary income. Each of the remaining statements are true. Brainstorm a list of criteria by which you would select and prioritize projects. The contract has a schedule of surrender charges, beginning with a 7% charge in the first year, and declining by 1% each year. C)Mortality risk. required to be located off of the company's premises. Reference: 12.1.4.1 in the License Exam. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. Distribution of dividends occurs during the accumulation period. Advantages And Disadvantages Of Adjustable Life, Case Study: Cimb-Principal Asset Management Berhad. D) a VA contract is subject to fluctuating values due to market fluctuations in the underlying separate accounts. the producer is responsible for providing the applicant a summary of coverage that includes all of the following EXCEPT. Annuities are similar to other forms of investing in that the owner invests money with the hope that it will gain in value, but annuities also come with higher fees than most mutual funds. used to escrow late or otherwise delinquent premium payments. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. D. insurance companies keep variable annuity funds in separate accounts from other insurance products. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. This compensation may impact how and where listings appear. The largest monthly check an annuitant can receive for the rest of his life is generated by a straight life (life income or life only) payout option. Once annuitized, the number of annuity units does not vary. Many investments are taxed year by year, but the investment earningscapital gains and investment incomein annuities arent taxable until the investor withdraws money. B)Fixed annuity contract with a discussion regarding timing risk D)accumulation units. A client has purchased a nonqualified variable annuity from a commercial insurance company. A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. In a fixed annuity, the insurance company guarantees the principal and a minimum rate of interest. D)0. are purchased primarily for their insurance features Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? CAV would consider the date from which interest begins to accrue on the bond (the dated date), the bond's maturity date, and the bonds original offering yield. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. B)Variable annuities. Question #36 of 48Question ID: 606805 Variable Annuitization is an annuity option where income payments received by the policyholder vary based on the investment performance of the annuity. The growth portion is subject to a 10% penalty. Flexible premium annuities are only deferred annuities; that is, they are designed to have a significant period of payments into the annuity plus investment growth before any money is withdrawn from them. The remainder of the premium is invested in the separate account. This factor is used to establish the dollar amount of the first annuity payment. A)100% tax free. Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. U.S. Securities and Exchange Commission. Which of the following recommendations would best meet the customer profile? \text{Income statements accounts:}&&&\\ Though its stated return might not be as high as the other choices' potential returns, only a fixed annuity fits the objective and risk averse traits of his client. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. Which of the following statements regarding variable annuities are TRUE?
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