. co. products that should be purchased primarily for the ins. Question #19 of 48Question ID: 606826 D) a VA contract is subject to fluctuating values due to market fluctuations in the underlying separate accounts. The upside was the possibility of higher returns during the accumulation phase and a larger income during the payout phase. An investor who has purchased a nonqualified variable annuity has the right to: Which of the following statements regarding variable annuities are TRUE? Is required by the Securities Act of 1933, 4. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. A guaranteed lifetime annuity promises to pay the owner an income for the rest of their life. C)annuity units. D)the state insurance department. C)I and III. D)II and IV. Question #15 of 48Question ID: 606804 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. Usually the term annuity relates to a contract between an individual and a life insurance company. Since the client is older than 59 at the time of distribution, the additional 10% penalty tax is not incurred. Contributions to a nonqualified variable annuity are not tax deductible. There is no clear answer to this. A) There is no risk in a variable annuity. In March, the actual net return to the separate account was 8%. C. variable annuities will protect an investor against capital loss. It may decrease in value. Distributions to the annuitant will fluctuate during the payout period. Dividing the funds available so as to fund 2 separate contracts, whether they be joint with last survivor or life income, would not be cost efficient for spouses. Unit 12: Variable Annuities Flashcards | Chegg.com Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. Copyright 2023, Insurance Information Institute, Inc. However, they are protected by state guaranty associations in the event that the insurance company providing the product goes out of business. Question #17 of 48Question ID: 606802 Contributions to a nonqualified annuity are made with the owner's after-tax dollars. Many investments are taxed year by year, but the investment earningscapital gains and investment incomein annuities arent taxable until the investor withdraws money. Question #27 of 48Question ID: 606818 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 . 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. D)II and III. the state insurance commission. A variable annuity is both an insurance and a securities product. C)Growth mutual funds used to escrow late or otherwise delinquent premium payments. The nature of the securities invested in-bonds and growth stocks-makes it necessary that sales representatives and their principals be licensed in securities as well as insurance. used to escrow late or otherwise delinquent premium payments. The number of annuity units is fixed at the time of annuitization. All of the following are characteristics of variable annuity contracts Question #32 of 48Question ID: 606815 Please select the correct language below. What Are the Biggest Disadvantages of Annuities? Types of Annuities Flashcards by Liliana Benavides | Brainscape 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)earnings only and taxable Reference: 12.1.2 in the License Exam, Question #39 of 48Question ID: 721469 Single premium annuities A single premium annuity is an annuity funded by a single payment. Variable annuity salespeople must be registered with FINRA and the state insurance department. &\textbf{Increase}&\textbf{Decrease}&\textbf{Normal Balance}\\ All of the following statements concerning a variable annuity are correct EXCEPT: A. the invested money will be professionally managed according to the issuers' investment objectives. A deferred annuity is an insurance contract that promises to pay the buyer a regular stream of income, or a lump sum, at some date in the future. A)IPO. D)money market funds. D)I and III. A separate account will invest in a number of different securities. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: There are also immediate annuities, which begin paying income right away. 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. 5. 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. A market-value adjusted annuity is one that combines two desirable features the ability to select and fix the time period and interest rate over which the annuity will grow, and the flexibility to withdraw money from the annuity before the end of the time period selected. a life insurance holder lives longer than expected. The individual already making the max retirement acct contributions, with cash to invest, would be most suitable for a VA recommendation. A joint-and-last-survivor annuity is a payout option where: Your answer, two people are covered and payments continue until the second death., was correct!. An equity indexed annuity is a type of fixed annuity, but looks like a hybrid. Your answer, Life annuity., was correct!. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. All Rights Reserved. In the first year, you decide to withdraw $50,000. 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. A)I and IV. A registered person recommends the purchase of a variable annuity to one of his clients. As with all tax-deferred accounts, municipal bonds are not appropriate investments because interest earned on municipals is already tax exempt at the federal level. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. co., assumes the investment risk. Which of the following recommendations would best meet the customer profile? Variable Annuities: A Good Retirement Investment? Which of the following statements regarding variable annuities are TRUE? The following are all characteristics of variable annuities EXCEPT: [A]The investment portfolio contains insurance protections against losses. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. A)II and III The nature of the securities invested in - bonds and growth stocks - makes it necessary that sales reps and their principals be licensed in securities as well as insurance. Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. B) the state insurance department. With regard to a variable annuity, all of the following may vary EXCEPT: Your answer, number of annuity units., was correct!. The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. If an annuitant lives longer than expected, the ins. d. Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs. D. Value of each annuity unit each month. He originally invested $29,000 4 years ago; it now has a value of $39,000. The number of accumulation units can rise during the accumulation period. Question #29 of 48Question ID: 606831 Variable annuity salespeople must register with all of the following EXCEPT: In addition, an element of risk must be present. 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. B) unsuitable because the return on something as conservative as a variable annuity tends to be low. These contracts cover both lives and will continue to make payments until the last spouse dies. B)I and III. A separate account will invest in a number of different securities. However, a discussion should occur regarding the risks that are associated with a fixed annuity; purchasing power risk. B)FINRA. Variable annuities must be registered with: 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. If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. 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. Distribution of dividends occurs during the accumulation period. The separate account is used for both variable life insurance and variable annuity investments. the producer is responsible for providing the applicant a summary of coverage that includes all of the following EXCEPT. a. Immediate annuities An immediate annuity is designed to start paying an income one time period after the immediate annuity is bought. 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. Under the terms of the plan, money paid into the annuity is not included in taxable income for the year in which it is paid. C)II and IV. Please sign in to access member exclusive content. Fixed annuities. 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. Her agent recommended she choose a variable annuity as a safe haven for the funds. \hline are purchased primarily for their insurance features. Question #22 of 48Question ID: 606803 For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. B)value of annuity units. A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. C)3800. The accumulation period of a variable annuity may continue for many years. Universal variable life policies are ins. A)each annuity unit's value and the number of annuity units vary with time. Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? C)Corporate bonds. Reference: 12.1.2 in the License Exam. by jmacewe, C)such an annuity is designed to combat inflation risk. Must precede every sales presentation. Meanwhile, options like an annuity can provide a guaranteed income during, With a deferred annuity, you make a one-time payment to the insurance. B)I and III. Which of the following recommendations would BEST meet the customer profile? Question #28 of 48Question ID: 606821 D)I and IV. The fund has a particular investment objective, and the value of the money in a variable annuityand the amount of money to be paid outis determined by the investment performance (net of expenses) of that fund. D)each annuity unit's value is fixed, but the number of annuity units varies with time. For this potential advantage, the investor, rather than the ins. Introducing Cram Folders! 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. Your answer, The entire $10,000 is taxable as ordinary income., was correct!. Nature of the underlying investment fixed or variable, Primary purpose accumulation or pay-out (deferred or immediate), Nature of payout commitment fixed period, fixed amount or lifetime, Premium payment arrangement single premium or flexible premium. Variable annuity salespeople must register with all of the following EXCEPT: Your answer, the state banking commission., was correct!. C)with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually 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!. Annuities | FINRA.org Your 65-year-old client owns a nonqualified variable annuity. A variable annuity's separate account is: The separate account is used for both variable life insurance and variable annuity investments. U.S. Securities and Exchange Commission. B)II and III. For a retired person, which of the following investments would provide the greatest protection against inflation? B)Universal variable life policy. 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!. B) Any tax due is deferred. the VA recommendation would not be suitable. Distribution can take place before or during any solicitation for sale. Balancesheetaccounts:AssetLiabilityOwnersequity:CapitalDrawingIncomestatementsaccounts:RevenueExpenseIncreaseCreditCreditCreditDecreaseCredit(j)CreditNormalBalanceDebit. All other tax provisions that apply to nonqualified annuities also apply to qualified annuities. Reference: 12.1.2 in the License Exam. Variable annuities are designed to combat inflation risk. An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. When a variable annuity contract is annuitized, the number of annuity units is fixed. A VA does not guarantee an earnings rate because earnings will depend on the performance of the separate account. Reference: 12.3.3 in the License Exam. The annuity unit's value represents a guaranteed return. B)Life annuity with period certain. D)I and II. D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. This customer has no spouse or dependents, which negates the value of the death benefit. A)III and IV. The growth portion is taxed as ordinary income. A)variable annuities will protect an investor against capital loss. B)Value of each annuity unit each month. She will receive the annuity's entire value in a lump-sum payment. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. Your answer, Variable annuities., was correct!. \end{array} 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). they have all the same characteristics as life insurance An Immediate Annuity is designed to provide each of the following features, EXCEPT: The creation of an estate Your client has a large sum of money to invest from the proceeds of the sale of his home. 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!. Sub accounts and mutual funds are conceptually identical, but sub accounts don't have ticker symbols that investors can easily type into a fund tracker for research purposes. The tax on this is $2,800 ($10,000 x 28%). Therefore only a fixed annuity could be considered as suitable. The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. All of the following statements regarding variable annuities are true EXCEPT: A. variable annuities may only be sold by registered representatives. C)none of these. Your 65-year-old client owns a nonqualified variable annuity. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. Reference: 12.3.4 in the License Exam. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. Variable annuities are regulated by state insurance departments and the federal Securities and Exchange Commission. We also reference original research from other reputable publishers where appropriate. Your answer, The entire $10,000 is taxable as ordinary income., was correct!. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? Explaining What have been the major population changes since the first census in 1790? C)prime rate. An accumulation unit in a variable annuity contract is: A registered representative explaining variable annuities to a customer would be CORRECT in stating that: A customer has a nonqualified variable annuity. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? However, if you take a withdrawal during the contractssurrender period, which can be as long as 15 years, youll generally have to pay a surrender fee. John is the annuitant in a variable plan, and Sue is the beneficiary. The offers that appear in this table are from partnerships from which Investopedia receives compensation. All of the following characteristics are shared by both a mutual fund and a variable annuity's separate account EXCEPT: A)the client assumes the investment risk. A)II and IV. Your answer, waiver of premium, was correct!. B. suitable regardless of funding sources, D. suitable is she has enough equity in the home to fund the VA without cashing out the other VA contract. CDs insured by the FDIC. Variable annuities grow tax-deferred, so you dont have to pay taxes on any investment gains until you begin receiving income or make a withdrawal. The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. 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!. Variable Annuities Flashcards | Quizlet must provide full and fair disclosure. withdraw funds without any tax consequences. A client has purchased a nonqualified variable annuity from a commercial insurance company. 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 value of a variable annuity is based on the performance of an underlying portfolio of sub accounts selected by the annuity owner. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. Which of the following statements regarding variable annuities are TRUE? IncreaseDecreaseNormalBalanceBalancesheetaccounts:AssetCreditLiabilityCreditOwnersequity:CapitalCreditDrawingIncomestatementsaccounts:RevenueCredit(j)ExpenseCreditDebit\begin{array}{lccc} C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. co. will have to continue payments longer than expected. variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic pay-ments to you, beginning either immediately or at some future date. Introducing Cram Folders! There is a common apprehension that if an individual starts an immediate lifetime annuity and dies soon after that, the insurance company keeps all of the investment in the annuity. C)the invested money will be professionally managed according to the issuers' investment objectives. The number of annuity units is fixed at the time of annuitization. Thanks for choosing us. audio not yet available for this language, {"cdnAssetsUrl":"","site_dot_caption":"Cram.com","premium_user":false,"premium_set":false,"payreferer":"clone_set","payreferer_set_title":"Variable Annuities","payreferer_url":"\/flashcards\/copy\/variable-annuities-5097323","isGuest":true,"ga_id":"UA-272909-1","facebook":{"clientId":"363499237066029","version":"v12.0","language":"en_US"}}. 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. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? Add to folder D)accumulation units. 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. This recommendation is: A) suitable due to the relative safety of the investment. In a variable life annuity with 10-year period certain, a contract holder receives: All of the following statements about variable annuities are true EXCEPT: Your answer, a minimum rate of return is guaranteed., was correct!. D)Variable annuity contract with a discussion regarding legislative risk, A VA with its investments in the separate account subject to market risk would not align with the customer's objective. Variable annuities offer the possibility of higher returns and greater income than fixed annuities, but theres also a risk that the account will fall in value. The earnings on dollars invested into a variable annuity accumulate tax deferred, which is why variable annuities are popular products for retirement accumulation. B)each annuity unit's value varies with time, but the number of annuity units is fixed. Contributions to an IRA may be tax deductible, depending on the individual's earnings and participation in a company-sponsored qualified retirement plan. Fixed period annuities A fixed period annuity pays an income for a specified period of time, such as ten years. A)the yield is always higher than mortgage yields. For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? A policyholder will make a lump sum payment or a series of payments in exchange for a guaranteed amount of income. D)suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract, Based on the information given in the question, the VA recommendation would not be suitable. How is the distribution taxed? B)reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. Are There Penalties for Withdrawing Money From Annuities? 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.