A fixed annuity is a contract between the policyholder and an insurance company. Variable annuity contracts were devised to help investors keep pace with inflation. A)100% tax free. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. She will receive the annuity's entire value in a lump-sum payment. D. a majority vote from the shareholders is required to change the investment objectives. For example, if the income is monthly, the first payment comes one month after the immediate annuity is bought. Question #42 of 48Question ID: 606830 Variable annuities offer investors choices among a number of complex contract features and options. FINRA. D. Value of each annuity unit each month. The growth portion is taxed as ordinary income. 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. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. B)I and IV. A VA does not guarantee an earnings rate because earnings will depend on the performance of the separate account. The client's investment objectives, tax bracket, investment experience and risk tolerance all align well with a VA recommendation. When a variable annuity contract is annuitized, the number of annuity units is fixed. Therefore only a fixed annuity could be considered as suitable. A security is an investment for profit with management performed by a third party. The funds in an annuity are off-limits to creditors and other debt collectors. Are Variable Annuities Subject to Required Minimum Distributions? 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. CDs insured by the FDIC. The annuity unit's value represents a guaranteed return. the producer is responsible for providing the applicant a summary of coverage that includes all of the following EXCEPT. Her agent recommended she choose a variable annuity as a safe haven for the funds. Question #20 of 48Question ID: 606808 B)Tax-free municipal bonds His objective is monthly income that he can receive after he retires to supplement his small pension and Soc Sec benefits. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. Reference: 12.2.1 in the License Exam. Fixed annuities, on the other hand, provide a guaranteed return. Immediate life annuity with 10-year period certain. Qualified annuities A qualified annuity is one used to invest and disburse money in a tax-favored retirement plan, such as an IRA or Keogh plan or plans governed by Internal Revenue Code sections 401(k), 403(b) or 457. B. variable annuities offer the investor protection against capital loss. Question #44 of 48Question ID: 606797 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). The annuity has grown to value of $60,000. The tax on this is $2,800 ($10,000 x 28%). C) a VA contract does not guarantee any type of return. An individual retirement annuity is an investment vehiclesimilar to an individual retirement accountthat is offered by insurance companies. Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. A)Joint tenants annuity. D)Investment risk. This withdrawal flexibility is achieved by adjusting the annuitys value, up or down, to reflect the change in the general level of interest rates from the start of the selected time period to the time of withdrawal. 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!. C)II and III. Your customer, still working, informs you that she will be funding a variable annuity you have recommended from 2 sources: a refinancing of her primary home where she will be able to draw out equity that has built up since it was purchased 15 years ago, and cashing out another variable annuity that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. C)the SEC. However, it does guarantee payments for life (mortality). have investment risk that is assumed by the investor Many investments are taxed year by year, but the investment earningscapital gains and investment incomein annuities arent taxable until the investor withdraws money. 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. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. B)It will be lower. Future annuity payments will vary according to the separate account's performance. \text{Owner's equity:}&&&\\ If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? 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. What is her total tax liability? Your answer, It will be higher., was correct!. Why Is It Important To Have Your Financial Plan And Goals In Place When Considering Investments? A)the yield is always higher than mortgage yields. Which Earns More: Variable or Fixed Annuities? B.The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. Add to folder D)all return of cost basis and nontaxable, Annuitized payments from a variable annuity are viewed for tax purposes as part earnings and part cost basis. A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. withdraw funds without any tax consequences. C)I and III. 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. must be filed with FINRA. D)II and IV. 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 following annuities are available in fixed or variable form: 1. The pooling is unique to annuities, and its what enables annuity companies to be able to guarantee a lifetime income. D)variable annuities offer the investor protection against capital loss. Cashing out life insurance policies or VAs where steep surrender charges are likely to exist, particularly in the earlier years of those contracts, is also considered abusive. Reference: 12.1.2.1.1 in the License Exam. A)exempt from taxes C)the payout plans provide the client income for life. The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. B)mutual fund units. The payout compared to the initial payout upon annuitization. B)part earnings and part cost basis The most suitable option and one considered effective for married couples is a single joint and last survivor contract. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. Reference: 12.3.2.4 in the License Exam. Reference: 12.3.1 in the License Exam, Question #30 of 48Question ID: 606833 The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. The number of annuity units rises once annuitization begins. \hspace{5pt}\text{Asset}&&\text{Credit}&\\ Question #46 of 48Question ID: 606796 Variable annuities are designed to combat inflation risk. Sub accounts and mutual funds are conceptually. Lifetime annuities A lifetime annuity provides income for the remaining life of a person (called the annuitant). If a customer is about to buy a variable annuity contract and wants to select an annuity with a payout option providing the largest possible monthly payment, which of the following payout options would be MOST suitable? The growth of the annuitys value and/or the benefits paid does not depend directly or entirely on the performance of the investments the insurance company makes to support the annuity. Are you having trouble answering the question All of the following are characteristics of a variable annuity, except:? B)corporate stock. C)The entire $10,000 is taxable as ordinary income. contract. Her intent was to use the funds for the down payment on a house after graduation. The payout compared to last month's payout. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. All of the following are characteristics of a variable annuity, except. [C]The portfolio is professionally managed. Immediate annuities An immediate annuity is designed to start paying an income one time period after the immediate annuity is bought. Question #14 of 48Question ID: 606823 A separate account will invest in a number of different securities. You can learn more about the standards we follow in producing accurate, unbiased content in our. 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. B) a VA contract is not required to be sold by prospectus because it is an ins. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? When a VA contract is annuitized, the # of annuity units is fixed. Reference: 12.1.1 in the License Exam. 2003-2023 Chegg Inc. All rights reserved. Please sign in to share these flashcards. D)money market funds. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: An investor owning which of the following variable annuity contracts would hold accumulation units? If the customer takes a withdrawal of $10,000, what are the tax consequences? C)Keogh plans. The following table summarizes the rules of debit and credit. a variable annuity guarantees payments for life. Reference: 12.1.2 in the License Exam, Question #39 of 48Question ID: 721469 A prospectus for a variable annuity contract: 1. A variable annuity is a security and must be registered with the SEC, not FINRA. A)not suitable \hspace{5pt}\text{Drawing}&&&\\ This recommendation is: A) suitable due to the relative safety of the investment. C) suitable due to the death benefit features of a variable annuity. Single premium annuities are often funded by rollovers or from the sale of an appreciated asset. An investor who purchases a fixed annuity contract assumes purchasing-power risk. a variable annuity does not guarantee an earnings rate of return. For example, individuals can invest in a fixed annuity that credits a specified interest rate, similar to a bank Certificate of Deposit (CD). B)II and III. Reference: 12.3.2.1 in the License Exam. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. Her intent was to use the funds for the down payment on a house after graduation. Required fields are marked *. Fixed annuities typically earn at a lower, stable rate. As part of the registration requirements, a prospectus must be filed & distributed to prospective investors. A)a lifetime withdrawal benefit (LWB) or lifetime income benefit is generally in the form of a rider attached to the contract which will come at a cost to the annuitant Before buying a variable annuity, investors should carefully read the prospectus to try to understand the expenses, risks, and formulas for calculating investment gains or losses. Moreover, annuity benefits that pass to beneficiaries dont go through probate and arent governed by the annuity owners will. must provide full and fair disclosure. A)2800. A)accumulation shares. 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. Question #43 of 48Question ID: 606809 They are also riddled with fees, which can cut into profits. Question #12 of 48Question ID: 606814 Who assumes the investment risk in a variable annuity contract? All of the following statements about variable annuities are true EXCEPT: Variable annuities were introduced in the 1950s as an alternative to fixed annuities, which offer a guaranteedbut often lowpayout during the annuitization phase. We also reference original research from other reputable publishers where appropriate. B)I and III. The most popular type of variable annuity is a deferred annuity. 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. IncreaseDecreaseNormalBalanceBalancesheetaccounts:AssetCreditLiabilityCreditOwnersequity:CapitalCreditDrawingIncomestatementsaccounts:RevenueCredit(j)ExpenseCreditDebit\begin{array}{lccc} Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. B)a majority vote from the shareholders is required to change the investment objectives. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. He originally invested $29,000 4 years ago; it now has a value of $39,000. co. will have to continue payments longer than expected. 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. Deferred Annuity Definition, Types, How They Work, What Is a Fixed Annuity? None of the other investments listed here offer tax-deferred growth. B)Two-thirds of the withdrawal is taxable as ordinary income. In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. D) There is no tax as the withdrawal is considered return of capital. B)value of annuity units. Changes in payments on a variable annuity correspond most closely to fluctuations in the: This factor is used to establish the dollar amount of the first annuity payment. An annuity may be purchased under all of the following methods EXCEPT: Your answer, periodic payment immediate annuity., was correct!. Her agent recommended she choose a variable annuity as a safe haven for the funds. With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. This factor is used to establish the dollar amount of the first annuity payment. 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. are purchased primarily for their insurance features Fixed annuities are regulated by state insurance departments. Introducing Cram Folders! Reference: 12.1.4.1 in the License Exam. Variable Annuities: A Good Retirement Investment? Your email address will not be published. In other words, the money in a fixed annuity will grow and will not drop in value. Variable annuity salespeople must register with all of the following EXCEPT: Your answer, the state banking commission., was correct!. The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: B) the yield is always higher than bond yields, C) the yield is always higher than mortgage yields, D) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. D)an accounting measure used to determine payments to the owner of the variable annuity. Which of the following are defined as securities? B)Variable annuities. Among annuities, variable annuities differ from fixed annuities, which provide a specific and guaranteed return. Money in a variable annuity is invested in a fundlike a mutual fund but one open only to investors in the insurance companys variable life insurance and variable annuities. Introducing Cram Folders! Question #47 of 48Question ID: 606813 D)II and III. The value of a variable annuity is based on the performance of an underlying portfolio of sub accounts selected by the annuity owner. The # of annuity units is fixed at the time of annuitization, 4. 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. B)I and II An example would be if a life annuity with 10-year period certain contract holder died after 5 years, payments would continue for 5 more years to the beneficiary and then stop. Annuities are financial products intended to enhance retirement security. Advantages And Disadvantages Of Adjustable Life, Case Study: Cimb-Principal Asset Management Berhad. She may choose to receive monthly payments for the rest of her life. When the second party dies, all payments cease. The number of accumulation units is always fixed throughout the accumulation period. Fixed Annuity, Retirement Annuities: Know the Pros and Cons. A)II and IV. Question #38 of 48Question ID: 606798 B)I and III. People who own an immediate annuity (that is, who are receiving money from an insurance company), are afforded some protection from creditors. John is the annuitant in a variable plan, and Sue is the beneficiary. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59 1/2. However, it does guarantee payments for life (mortality). We weren't able to detect the audio language on your flashcards. Variable annuities must be registered with: A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. There are also immediate annuities, which begin paying income right away. B)Life annuity with period certain. The upside was the possibility of higher returns during the accumulation phase and a larger income during the payout phase. 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. C)insurance companies keep variable annuity funds in separate accounts from other insurance products. While variable annuities have greater potential for earnings, since their interest rate rises and falls with their underlying investments, they can lose money. Variable annuities must be registered with: C)none of these. For a retired person, which of the following investments would provide the greatest protection against inflation? An annuity is an insurance product that promises to pay out income at a future date based on invested funds. Fixed annuities. Please upgrade to Cram Premium to create hundreds of folders! Meanwhile, options like an annuity can provide a guaranteed income during, With a deferred annuity, you make a one-time payment to the insurance. D)accumulation units. All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: 3. \text{Balance sheet accounts:}\\ Question #26 of 48Question ID: 606811 Once the contract is annuitized, monthly payments to the customer are: A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. A)Purchasing power risk. Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies. 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. With regard to a variable annuity, all of the following may vary EXCEPT: Your answer, number of annuity units., was correct!. Each of the remaining statements are true. We'll bring you back here when you are done. Generally, a life only contract pays the most per month because payments cease at the annuitant's death. When money is deposited into the annuity, it is purchasing accumulation units. D)II and III. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? Based on this information the RR should: A)number of annuity units. C)such an annuity is designed to combat inflation risk. A)defined contribution plans. D)Any tax due is deferred. D) The fact that periodic payments into the contract may increase or decrease. If the customer takes a withdrawal of $10,000, what are the tax consequences? C. variable annuities will protect an investor against capital loss. The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. Typically, they allow one withdrawal each year during the accumulation phase. 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. 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!. A variation of lifetime annuities continues income until the second one of two annuitants dies. You have created 2 folders. C)municipal bonds. The number of annuity units is fixed at the time of annuitization. U.S. Securities and Exchange Commission. In March, the actual net return to the separate account was 8%. . D) The investment risk is shared between the insurance company and the policyowner. A)value of underlying securities held in the separate account. Reference: 12.3.4 in the License Exam. A)variable annuities will protect an investor against capital loss. Reference: 12.2.1 in the License Exam, Question #48 of 48Question ID: 606835 A)Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. a life insurance holder dies sooner than expected. The money paid in will be returned tax free, but the earnings portion will be taxed as ordinary income. C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. C)Variable annuity contract with a discussion regarding interest rate risk If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? Though there is no beneficiary designation during the annuitization, this is not an issue for this annuitant. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. "Variable Annuities: What You Should Know," Page 10. 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? B)100% taxable. A VA is a security & must be registered with the SEC, not FINRA. U.S. Securities and Exchange Commission. Question #11 of 48Question ID: 606816 Distributions from such an annuity are computed on a LIFO basis with the income taxed first. the SEC. A)Corporate debt securities C)with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually A policyholder will make a lump sum payment or a series of payments in exchange for a guaranteed amount of income. Deferred annuities, also referred to as investment annuities, are available in fixed . The separate account performance compared to an assumed interest rate. A guaranteed lifetime annuity promises to pay the owner an income for the rest of their life. In March, the actual net return to the separate account was 8%. The separate account is NOT likely to invest in: Your answer, municipal bonds., was correct!. B)IRAs. Variable annuity salespeople must register with all of the following EXCEPT: Variable annuity salespeople must be registered with FINRA and the state insurance department. C)III and IV. 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!. A separate account will invest in a number of different securities. All of the following are characteristics of Variable Annuity contracts EXCEPT The possibility of higher returns and greater income than fixed annuities, but there's also a risk that the account will fall in value The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? 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. An annuitant assumes the investment risk of a variable annuity and is not protected by the insurance company from capital losses. A)unsuitable because the return on something as conservative as a variable annuity tends to be low. If they buy a variable annuity, their money can be invested in stocks, bonds or mutual funds. Your answer, Life annuity., was correct!. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. There is no beneficiary in the event the annuitant dies. \end{array} 6. C)the number of annuity units is fixed, and their value remains fixed. How is the distribution taxed? The # of accumulation units can rise during the accumulation period, 3. A)II and III If an ins. An equity indexed annuity is a type of fixed annuity, but looks like a hybrid. Some fixed annuities credit a higher interest rate than the minimum, via a policy dividend that may be declared by the companys board of directors, if the companys actual investment, expense and mortality experience is more favorable than was expected. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. B) the rate of return is determined by the underlying portfolio's value, C) such an annuity is designed to combat inflation risk, D) the number of annuity units becomes fixed when the contract is annuitized. Deferred annuities, also referred to as investment annuities, are available in fixed or variable forms. Reference: 12.1.4.1 in the License Exam. How is the distribution taxed? Individuals are reducing their overall risk, because only part of the money is being put in each investment. B)Capital gains taxation on the earnings withdrawn in excess of the owner's basis. b. Reference: 12.1.2.1.2 in the License Exam. withdraw funds without any tax consequences. Life Insurance vs. Annuity: What's the Difference? However, they are protected by state guaranty associations in the event that the insurance company providing the product goes out of business. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. 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. Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. C)not suitable because a lifetime income rider is only for someone who is already retired The number of annuity units is fixed at the time of annuitization. C)III and IV. What Are the Risks of Annuities in a Recession? 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. 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. In addition, an element of risk must be present. Reference: 12.1.2 in the License Exam. Single premium annuities A single premium annuity is an annuity funded by a single payment. B)fixed in value until the holder retires. The holder of a VA receives the largest monthly payments under which of the following payout options? Reference: 12.3.3 in the License Exam. Distributions to the annuitant will fluctuate during the payout period. [D]The portfolio may contain mutual fund shares. 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. Often used for retirement planning purposes, it is meant to provide a regular (monthly, quarterly, annual) income stream, starting at some point in the future.
the following are all characteristics of variable annuities except:
the following are all characteristics of variable annuities except:
the following are all characteristics of variable annuities except: