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Mr. Smith received monthly benefits from its annuity, and upon his death, Mrs. Smith receives a reduced amount. What annuity payment option did Mr. Smith choose?

a. Life Income
b. Joint and Survivorship
c. Cash Refund
d. Minimum Distribution

b. Joint and Survivorship

The Payment Option that would continue to pay to Mrs. Smith a reduced amount is Joint & Survivorship. The only other Payment Option shown (Life Income) would stop upon Mr. Smith's death.

What do both life insurance and annuities have in common?

a. They have nothing in common.
b. Both reflect the same life expectancy.
c. Both are purchased to give greater income at an older age.
d. Both use the pooling technique to spread the risk.

d. Both use the pooling technique to spread the risk.

Annuity mortality tables reflect a greater life expectancy than do life insurance tables, and annuities are sold to give a greater income at an older age, whereas life insurance is sold to create an immediate income in the case of premature death.

With a Variable Annuity, a fee is stated for investing the owner's money within a family of funds. The fee is referred to as:

a. Clients fee
b. Agents fee
c. Finders fee
d. Management fee

d. Management fee

Fund managers normally charge a management fee, which is stated in the prospectus and in the Variable contract.

You purchase an annuity in December and begin receiving monthly benefits in May. What type of annuity do you own?

a. Single Premium IRA
b. Tax Sheltered Annuity
c. Retirement Annuity
d. Single Premium Immediate Annuity

d. Single Premium Immediate Annuity

The question addresses when the actual receipt of benefits from an annuity begins. When benefits begin within a year of the issue date, this is referred to as 'immediate'.

All are true regarding Variable Annuities, except:

a. Values and benefits are determined by the equity of the investment securities.
b. Have a level number of annuity units with the unit value fluctuating.
c. The premiums paid are usually invested in separate account(s).
d. Values and benefits may increase, but not decrease.

d. Values and benefits may increase, but not decrease.

The investment varies according to the funding medium, which fluctuates.

Which is not a trait of a Fixed Annuity?

a. The insurer's assets guarantee the fixed annuity contract.
b. The insurer bears any investment risk.
c. It must include a projected schedule of cash availability on its anniversary date, for a minimum of 10 years.
d. The purchasing power of fixed amount decreases as the cost of living increases.

c. It must include a projected schedule of cash availability on its anniversary date, for a minimum of 10 years.

A 20-year projected schedule of cash availability must be shown of each anniversary.

An annuity is payable for as long as the annuitant lives, and upon death, all the payments cease. This is which Payment Option?

a. Life Income with Refund Option
b. Life Income Joint & Survivor Option
c. Joint Life Option
d. Life Income Option

d. Life Income Option

The annuity Life Income Option (as does the Life Settlement Option in life insurance) pays a benefit as long as the annuitant lives, and upon death, all payments cease.

Which of the following is used to determine the amount of any systematic annuitization?

a. Bailout Provision
b. Assumed Interest Rate (AIR)
c. Present bond rate
d. Standard and Proof's Average Rate

b. Assumed Interest Rate (AIR)

The AIR is what an insurer uses for calculating the payments during the annuitization period. The higher the assumed interest rate, the greater the amount of each monthly benefit.

What is the greatest marketable benefit of a Flexible Premium Deferred Annuity?

a. Tax deferment
b. Surrender charges could occur if cancelled in early years.
c. Contributions may be as often and as large as the owner's desires.
d. The owner may cancel at anytime.

a. Tax deferment

All responses could be argued as a characteristics of a FDPA, but the greatest marketable benefit is tax deferment.

Which is true regarding Variable Annuities?

a. Values are determined by the equity of the stock market.
b. None of the answers listed are true.
c. Generate an immediate estate.
d. Generally sold by property and causality companies.

b. None of the answers listed are true.

All statements are false regarding Variable Annuities. Values are determined by the performance of the separate account(s); they are sold by life and securities licensed individuals; and life insurance, not annuity, generates an immediate estate.

What are the different methods of purchasing annuities?

a. Fixed, Variable
b. Single Premium Immediate, Flexible Premium Immediate, Flexible Premium Deferred
c. Installment Premium Deferred, Lump Sum Immediate, Life Income with Refund
d. Single Premium Immediate, Single Premium Deferred, Flexible Premium Deferred

d. Single Premium Immediate, Single Premium Deferred, Flexible Premium Deferred

The question addresses the different methods of purchasing annuities, ot types of annuities.

All statements regarding annuities are true, except:

a. Only people on fixed incomes can purchase annuities.
b. Corporations may not use annuities to invest profits and defer taxes as the assets grow for the benefit of the corporation.
c. An annuitant may withdraw the cash value anytime prior to starting benefit payments.
d. A death benefit is payable if the annuitant dies prior to starting benefit payments.

a. Only people on fixed incomes can purchase annuities.

Anyone that is desirous to own an annuity can. People with fixed incomes would likely purchase a Fixed Annuity, whereas those with discretionary incomes would likely purchase a Variable Annuity.

You may deposit your lump sum or ongoing contributions in four types of annuity. What are they?

a. 401k, IRA, TSA and KEOGH
b. Immediate, Deferred, Immediate Deferred and Deferred Immediate
c. SPIA, SPDA, FPDA and USDA
d. Variable, Fixed, Equity Indexed and Market Value

d. Variable, Fixed, Equity Indexed and Market Value

The question references types of annuities, not qualified plans, or dates that benefits begin, or methods of purchase.

Which statement is true of annuity contracts?

a. Annuities and life insurance use the same mortality table.
b. Annuities are purchased for the same reasons as life insurance.
c. A Retirement Annuity is a form of Decreasing Term.
d. The purchase of an annuity helps to protect against out-living your income.

d. The purchase of an annuity helps to protect against out-living your income.

Annuities guard against living too long, life insurance guards against premature death. Annuity mortality tables projects one to live longer than life insurance tables. Annuities are not a form of Decreasing Term Life Insurance.

If an annuitant suffered a long-term disability and used the funds from an annuity as a result, what surrender charges would be assessed?

a. 7.5%
b. 20%
c. None
d. 10%

c. None

Annuity surrender charges are generally waived if the annuitant is hospitalized for an extended period, placed in a nursing facility, becomes disabled, or dies.

Which would be incorrect regarding a Variable Annuity?

a. The contract owner bears the investment risk and receives the return actually earned on invested assets, less any charges assessed by the insurer.
b. Upon annuitization, the accumulation units are converted to annuity units. The income is paid based on the value of the units.
c. Premiums paid during the accumulation period are invested in a separate account(s).
d. The number of annuity units received, and the unit value, remain level.

d. The number of annuity units received, and the unit value, remain level.

Under Variable Annuities, upon annuitization, the number of units remain level, but the unit values fluctuate.

With a Life Income Payment Option, what happens at the annuitant's death?

a. At death, all payments cease.
b. The estate is paid the total balance.
c. Payments continue until the principle is paid out.
d. The beneficiary starts receiving benefits.

a. At death, all payments cease.

Because all payments cease upon the annuitant's death, the amounts of the monthly income payments are larger while the annuitant is alive, than under any other option.

All are characteristics of annuities, except:

a. Premature distributions are subject to a 15% penalty tax in order to discourage the use of annuity contracts as a short-term tax shelter.
b. Business Corporations may use annuities to provide pensions for employees, either nonqualified or qualified plans, or to structure payments of liability settlements.
c. Owners of individual annuities have contractual rights beginning at the time of purchase.
d. Annuities may use a beneficiary designation in case of the annuitant's death.

a. Premature distributions are subject to a 15% penalty tax in order to discourage the use of annuity contracts as a short-term tax shelter.

A penalty of 10% (not 15%) is levied to discourage annuities as short-term shelters.

Which is correct regarding annuities?

a. Variable - only an insurance license is required.
b. Fixed - the funds manager determines the rate of interest credited.
c. Fixed - guarantees a minimum rate of interest credited during the accumulation period.
d. Variable - the investment varies according to the fixed rate.

c. Fixed - guarantees a minimum rate of interest credited during the accumulation period.

Fixed Annuities do not use separate account(s); Variable Annuity values fluctuate according to the performance of the separate account(s); and Variable Annuitiese require both a life license and securities license.

Which is incorrect regarding annuities?

a. An owner may change the annuity date, the beneficiary, or the settlement option.
b. Annuities do not use the pooling technique to spread risk.
c. The accumulation period is the period prior to the annuitization date.
d. Once the payout period begins, the annuitant receives periodic payments.

b. Annuities do not use the pooling technique to spread risk.

Both life insurance and annuities utilize mortality tables and the pooling technique actuarially in spreading the risk to better predict life expectancy.

An annuity pays a benefit to a named beneficiary...

a. To the contingent beneficiary, if the annuitant and primary beneficiary have died after annuitization begins.
b. When the annuitant dies before receiving any annuity payments.
c. If the annuitant dies after receiving 12 monthly income payments.
d. Never

b. When the annuitant dies before receiving any annuity payments.

If the annuitant dies after receiving any annuity payments, then the payment option chosen determines the receipt of any annuity payment.

Which Securities Act deals primarily with new securities issues?

a. Act of 1934
b. Act 2
c. Investment Act of 1940
d. Act of 1933

d. Act of 1933

The Securites Act of 1933 deals principally with the regulation of new securites issues, while the Securities Act of 1934 deals with the regulation of the secondary securities markets.

The Payment Option that pays an income to two annuitants while both are living, and stops upon the death of the first annuitant, is which of the following?

a. Joint Life
b. Joint and Survivorship
c. Refund Annuity
d. Joint and Survivorship Period Certain

a. Joint Life

The Paymeny Option described is Joint Life, which pays to two annuities while living, but stops upon the death of the first annuitant rather than continuing to the surviving annuitant.

An annuity purchased 10 years ago would have some value at this time. The accumulation units may now be converted to annuity units. What type of annuity is this?

a. Taxable Annuity
b. Variable
c. Ten Year Certain
d. Fixed

b. Variable

Remember, Variable Annuities are paid in terms of units, rather than dollars. Upon annuitization, accumulation units are converted to annuity units, and the income is paid on the value of the annuity units.

All are Payment Options available upon annuitization, except:

a. Life Income with Refund
b. Life Income Joint & Survivor
c. Life Income Period Certain
d. Interest Only

d. Interest Only

Annuity Payment Options are nearly identical to life insurance Settlement Options, except for Interst Only.

Which statement is true regarding annuities?

a. The Life Income Payment Option pays less than any other option.
b. Annuities are short-term savings plans.
c. Annuities fund Savings Plans or Pension Plans and Term Life Plans.
d. When a contract is surrendered, any surrender charges reduce the contract payout.

d. When a contract is surrendered, any surrender charges reduce the contract payout.

Annuities do not fund Term Life Plans; the Life Income Option pays more than any other option; and annuities are long-term as opposed to short-term savings plans.

Mr. Zamboni is the owner and the annuitant. Should Mr. Zamboni die, Mrs. Zamboni, the designated beneficiary, assumes all ownership rights and tax deferment if Mr. Zamboni's death occurs during what period?

a. After first annuity premium.
b. First 10 years of the annuity.
c. Before age 70 1/2.
d. During the Accumulation Period.

d. During the Accumulation Period.

If Mr. Zamboni's death were to occur during the Annuitization Period, the Payment Option chosen would prevail.

When you own a Single Premium Immediate Annuity (SPIA), this means you begin receiving payments:

a. Within 1 year
b. Within 1 month
c. Within 60 days, once proper paperwork is completed
d. At a specified date next year

a. Within 1 year

Under a SPIA, the idea is to have immediate access to income. There is essentially no accumulation period, benefits begin within one year of the issue date.

Which statement is true regarding Fixed Annuities?

a. Upon annuitization, the annuity payments are level.
b. The contract owner bears the investment risk.
c. Premiums are allocated to separate accounts.
d. All Fixed Annuities are Deferred Annuities.

a. Upon annuitization, the annuity payments are level.

Premiums are allocated to the insurer's general account; the insurer has the investment risk; and fixed annuities may be immediate or deferred.

The Payment Option that pays an income for the life of the annuitant or for a specified period, whichever occurs last, is:

a. Life Income
b. Temporary Annuity
c. Life Income with Refund
d. Life Income with Period Certain

d. Life Income with Period Certain

All responses are payment options, but the question is specifically defining Life Income with Period Certain.

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