B)Fixed annuity contract with a discussion regarding timing risk 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. Answer: B Of the 4 customer profiles, the individual already making the maximum retirement account contributions, with cash to invest, would be most suitable for a VA recommendation. \hspace{5pt}\text{Capital}&\text{Credit}&&\\ Generally the most that creditors can access is the payments as they are made, since the money the annuity owner gave the insurance company now belongs to the company. Many variable annuities invest the separate account in mutual funds. 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. A) The fact that the annuity payment may increase or decrease. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. The amount that is paid doesnt depend on the age (or continued life) of the person who buys the annuity; the payments depend instead on the amount paid into the annuity, the length of the payout period, and (if its a fixed annuity) an interest rate that the insurance company believes it can support for the length of the payout period. A life with period certain contract guarantees payments for a specified number of years to a named beneficiary if the annuitant dies during that time. For a retired person, which of the following investments would provide the greatest protection against inflation? C)Growth mutual funds How a Fixed Annuity Works After Retirement. However, they are protected by state guaranty associations in the event that the insurance company providing the product goes out of business. Question #11 of 48Question ID: 606816 A registered representative explaining variable annuities to a customer would be CORRECT in stating that: 1. a VA guarantees an earnings rate of return, 2. a VA does not guarantee an earnings rate of return, 4. a VA does not guarantee payments for life. Typically, they allow one withdrawal each year during the accumulation phase. features they offer rather than as an investment. As part of his profile, he stresses that he has had uncomfortable experiences in the past with the stock market and is not inclined to invest in anything that is based on stock market performance and would opt for principal protection instead. B)each annuity unit's value varies with time, but the number of annuity units is fixed. A customer has a nonqualified variable annuity. Question #28 of 48Question ID: 606821 The following annuities are available in fixed or variable form: 1. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. The growth portion is subject to a 10% penalty. Balancesheetaccounts:AssetLiabilityOwnersequity:CapitalDrawingIncomestatementsaccounts:RevenueExpenseIncreaseCreditCreditCreditDecreaseCredit(j)CreditNormalBalanceDebit. A)II and IV. B)II and III. Funding a VA contract by cashing out either life insurance policies or existing VA contracts, especially those held for a short period of time is not suitable. B)Capital gains taxation on the earnings withdrawn in excess of the owner's basis. In this case, the investor is taking a lump-sum distribution before reaching age 59- and must pay an additional 10% penalty on the taxable amount. An accumulation unit in a variable annuity contract is: Your answer, an accounting measure used to determine the contract owner's interest in the separate account., was correct!. Her intent was to use the funds for the down payment on a house after graduation. A client has purchased a nonqualified variable annuity from a commercial insurance company. An annuity is an agreement for one person or organization to pay another a series of payments. A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as. Reference: 12.3.3 in the License Exam. Changes in payments on a variable annuity correspond most closely to fluctuations in the: If an annuitant lives longer than expected, the ins. D)value of accumulation units. Lifetime annuities A lifetime annuity provides income for the remaining life of a person (called the annuitant). All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: Your answer, variable annuities., was correct!. These contracts cover both lives and will continue to make payments until the last spouse dies. used to escrow late or otherwise delinquent premium payments. When money is deposited into the annuity, it is purchasing accumulation units. This factor is used to establish the dollar amount of the first annuity payment. are purchased primarily for their insurance features The amount that is paid depends on the age of the annuitant (or ages, if its a two-life annuity), the amount paid into the annuity, and (if its a fixed annuity) an interest rate that the insurance company believes it can support for the length of the expected payout period. Azanswer team is here with the correct answer to your question. Under rebalancing, investors shift their investments periodically to return them to the proportions that represent the risk/return combination most appropriate for the investors situation. In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. B) Any tax due is deferred. Fixed period annuities A fixed period annuity pays an income for a specified period of time, such as ten years. C)suitable due to the death benefit features of a variable annuity. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. "Variable Annuities: What You Should Know," Page 10. In general, annuities have the following features. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. Contributions to a nonqualified variable annuity are not tax deductible. have investment risk that is assumed by the investor. The growth of the annuitys value and/or the benefits paid may be fixed at a dollar amount or by an interest rate, or may grow by a specified formula. The accumulation unit's value is used to calculate the total value of the account. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? D)Dow Jones Industrial Average. A customer has a nonqualified variable annuity. In contrast to mutual funds and other investments made with aftertax money, with annuities there are no tax consequences if owners change how their funds are invested. In concept, the payments come from three pockets: The original investment, investment earnings and money from a pool of people in the investors group who do not live as long as actuarial tables forecast. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). A variation of lifetime annuities continues income until the second one of two annuitants dies. the state banking commission. The second phase is triggered when the annuity owner asks the insurer to start the flow of income, often referred to as the payout phase. The separate account is NOT likely to invest in: The earnings on dollars invested into a variable annuity accumulate tax-deferred, which is why variable annuities are popular products for retirement accumulation. All of the following are characteristics of a variable annuity, except: a. regulated under both securities and insurance laws. A)IPO. As the name implies, the investment performance of a variable annuity's portfolio (separate account) can vary, and the investor bears the risk of any potential decline in its value. Based only on these facts, the VA recommendation is: A. not suitable because a lifetime income rider is only for someone who is already retired. Chapter 12: Variable Annuities. An investor who has purchased a nonqualified variable annuity has the right to: Which of the following statements regarding variable annuities are TRUE? Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies. D)Any tax due is deferred. Question #42 of 48Question ID: 606830 C) Life annuity with 10 year period certain. D. Value of each annuity unit each month. D) Mutual Fund portfolio consisting of blue chip stocks. Therefore, ordinary income taxes will apply to the entire $10,000. C)II and IV. 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!. Who assumes the investment risk in a variable annuity contract? In a variable annuity contract, the provision that guarantees the annuitant payments for life is called the: Your answer, mortality guarantee., was correct!. a variable annuity guarantees payments for life. A fixed annuity is an insurance contract that pays a guaranteed rate of interest on the owner's contributions and later provides a guaranteed income. Because this is not guaranteed, the policyowner bears the investment risk. Reference: 12.1.2.1.1 in the License Exam. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. C)prime rate. Question #43 of 48Question ID: 606809 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: We also reference original research from other reputable publishers where appropriate. An annuity may be purchased under all of the following methods EXCEPT: Your answer, periodic payment immediate annuity., was correct!. & securities licenses. D)I and III. Question #16 of 48Question ID: 606807 Reference: 12.3.3 in the License Exam. From an insurance company, mortality risk turns out unfavorably if: 1. an annuitant lives longer than expected, 2. an annuitant dies sooner than expected, 3. a life ins. 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. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. D)It cannot be determined until the April return is calculated. The entire amount is taxed as ordinary income. In addition, an element of risk must be present. The individual already making the max retirement acct contributions, with cash to invest, would be most suitable for a VA recommendation. Here is how guaranteed lifetime annuities work. This would not align with the couple's criteria for coverage as long as they both live. For example, an individual might buy a nonqualified single premium deferred variable annuity. the producer is responsible for providing the applicant a summary of coverage that includes all of the following EXCEPT. A)I and IV. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. vote for the investment adviser.4. An annuitant assumes the investment risk of a variable annuity and is not protected by the insurance company from capital losses. D)0. A VA is a security & must be registered with the SEC, not FINRA. D) a VA contract is subject to fluctuating values due to market fluctuations in the underlying separate accounts. Her agent recommended she choose a variable annuity as a safe haven for the funds. A)There is no tax as the withdrawal is considered return of capital. In addition, insurer charges ten percent penalty if insured withdraw before he or she turns to fifty nigh and six month or become disabled, unless return wit Current assumption insurance is used to act like a bank; policy holders can put a good amount of money in an account to earn interest. All other tax provisions that apply to nonqualified annuities also apply to qualified annuities. Which of the following statements regarding variable annuities are TRUE? B)corporate stock. B)a majority vote from the shareholders is required to change the investment objectives. All of the following statements are true regarding both mutual funds and variable annuities EXCEPT: a. the return to investors is dependent on the performance of the securities in the underlying portfolio b. the investment company act of 1940 is the regulating legislation c. distributions from the underlying mutual fund are taxable to the holder in the year the distribution is made d. the . All of the following characteristics are shared by both a mutual fund and a variable annuity's separate account EXCEPT: Your answer, the payout plans provide the client income for life., was correct!. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. must be filed with FINRA. With regard to a variable annuity, all of the following may vary EXCEPT: Your answer, number of annuity units., was correct!. How Good of a Deal Is an Indexed Annuity? A universal variable life policy should be purchased primarily for its insurance features, not its investment features. Life Insurance vs. Annuity: What's the Difference? Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. 1. 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. Question #19 of 48Question ID: 606826 D)with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed, With guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is not guaranteed because payments stop when the annuitant has received an amount equal to the principal account value or the contract term ends. "Variable Annuities: What You Should Know," Pages 67. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. If the customer takes a withdrawal of $10,000, what are the tax consequences? Variable annuities must be registered with: a. As the name implies, the investment performance of a variable annuity's portfolio (separate account) can vary, and the investor bears the risk of any potential decline in its value. C)Keogh plans. A variable annuity's separate account is: Guaranteed Lifetime Annuity: How They Work, When They Pay You, Life Annuity: Definition, How It Works, Types, This is also generally true of retirement plans. D) The ordinary income on the proceeds over the cost basis plus 10% of the net gain (if any) if Sue is younger than 59- years old. Question #32 of 48Question ID: 606815 The number of annuity units rises once annuitization begins. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. For a retired person, which of the following investments would provide the greatest protection against inflation? D)the safety of the principal invested. A separate account will invest in a number of different securities. C)the number of annuity units is fixed, and their value remains fixed. Which Earns More: Variable or Fixed Annuities? The separate account performance compared to an assumed interest rate. If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? 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. The correct answer is: Defines a securities product All of the following policy elements are not guaranteed in a variable whole life policy, EXCEPT: Select one: a. The accumulation period of a variable annuity may continue for many years. C)II and IV. All of the following statements regarding variable annuities are true EXCEPT: Life with period certain will produce a smaller check for life because the insurance company will guarantee payments to a beneficiary for a certain period of time designated in the contract should the annuitant die within that period. Question #45 of 48Question ID: 606795 Once a variable annuity has been annuitized: Your answer, each annuity unit's value varies with time, but the number of annuity units is fixed., was correct!. When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. Deferred Annuity Definition, Types, How They Work, What Is a Fixed Annuity? There are two elements that contribute to the value of a variable annuity: the principal, which is the amount of money you pay into the annuity, and the returns that your annuitys underlying investments deliver on that principal over the course of time. The earnings are taxable but the cost basis is returned tax free. She may choose to receive monthly payments for the rest of her life. You dont have to worry about it anymore.

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