If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. Deferred Annuity Definition, Types, How They Work, What Is a Fixed Annuity? co. actuaries. Individuals are reducing their overall risk, because only part of the money is being put in each investment. However, they are protected by state guaranty associations in the event that the insurance company providing the product goes out of business. An accumulation unit in a variable annuity contract is: 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they are designed to have a significant period of payments into the annuity plus investment growth before any money is withdrawn from them. To prevent this situation individuals can buy a guaranteed period with the immediate annuity. Premiums made into the annuity purchase accumulation units, c. The separate account provides for a guaranteed minimum return, d. Each month the payment will increase, decrease, or remain the same as the previous months payment based on the actual return as compared to the assumed interest rate (AIR). You dont have to worry about it anymore. With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. D)variable annuities offer the investor protection against capital loss. 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. B)I and IV. The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. Question #35 of 48Question ID: 606810 c. The separate account provides for a guaranteed minimum return. Your answer, waiver of premium, was correct!. The # of accumulation units is always fixed throughout the accumulation period, 2. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. The number of accumulation units can rise during the accumulation period. The offers that appear in this table are from partnerships from which Investopedia receives compensation. 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 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. B)Value of each annuity unit each month. C)the number of annuity units is fixed, and their value remains fixed. Her intent was to use the funds for the down payment on a house after graduation. Question #25 of 48Question ID: 606819 Reference: 12.3.2.4 in the License Exam. B)a minimum rate of return is guaranteed. 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. 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. Many variable annuities invest the separate account in mutual funds. His objective is monthly income that he can receive after he retires to supplement his small pension and Soc Sec benefits. The customer, in the accumulation stage of the annuity, is holding accumulation units. Please sign in to share these flashcards. Question #16 of 48Question ID: 606807 This customer has no spouse or dependents, which negates the value of the death benefit. An annuity is an agreement for one person or organization to pay another a series of payments. a variable annuity guarantees payments for life. Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? D)value of accumulation units. D) unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. A)2800. Usually the term annuity relates to a contract between an individual and a life insurance company. by jmacewe, Investopedia does not include all offers available in the marketplace. When the second party dies, all payments cease. What Are the Distribution Options for an Inherited Annuity? C)II and IV. C)I and III. B)I and II 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. The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. 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. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. With variable annuities, the rate of returnand therefore the value of your investmentmight go up or down depending on the performance of the stock, bond and money market funds that you choose as investment options. A)It will stay the same. Reference: 12.1.2 in the License Exam. A)II and IV. Distribution can take place before or during any solicitation for sale. Which Earns More: Variable or Fixed Annuities? For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. B)Capital gains taxation on the earnings withdrawn in excess of the owner's basis. A) The fact that the annuity payment may increase or decrease. A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as. A variable annuity is both an insurance and a securities product. The annuity unit's value represents a guaranteed return. Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies. B)fixed in value until the holder retires. C)I and IV. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? guarantees payments for a certain period of time. The annuity has grown to value of $60,000. Please sign in to access member exclusive content. The value of accumulation and annuity units varies with the investment performance of the separate account. C)100% tax deferred. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. If an annuitant lives longer than expected, the ins. The value of the separate account is now $30,000. holder lives longer than expected, 4. a life ins. The earnings on dollars invested into a variable annuity accumulate tax deferred, which is why variable annuities are popular products for retirement accumulation. As part of the registration requirements, a prospectus must be filed & distributed to prospective investors. A guaranteed period commits the insurance company to continue payments after the owner dies to one or more designated beneficiaries; the payments continue to the end of the stated guaranteed periodusually 10 or 20 years (measured from when the owner started receiving the annuity payments). Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. That can adversely affect your returns over the long term, compared with other types of investments. 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. Question #14 of 48Question ID: 606823 Reference: 12.3.3 in the License Exam. Reference: 12.3.1 in the License Exam. All of the following are characteristics of variable whole life EXCEPT. 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. Therefore, variable annuities must be registered with the state insurance commission and the SEC. How is the distribution taxed? Question #37 of 48Question ID: 606817 A)the state banking commission. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? C)II 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!. Pretend you are on the leadership team of a manufacturing company that is currently challenged by low-cost competition. 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. B)II and III. Annuity death benefits are generally paid in a lump sum. 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. Value in separate account b. Accumulation units c. Death benefit d. Cash value Variable whole life policies have a guaranteed minimum death benefit. co. products that should be purchased primarily for the ins. Question #31 of 48Question ID: 606836 What Are Ordinary Annuities, and How Do They Work (With Example)? Annuities are complicated products, so that may be easier said than done. Most variable annuities are structured to offer investors many different fund alternatives. 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. must provide full and fair disclosure. Based on the client's profile, which of the following would be the best recommendation? The holder of a VA receives the largest monthly payments under which of the following payout options? Which of the following recommendations would best meet the customer profile? None of the other investments listed here offer tax-deferred growth. A customer is receiving annuitized payments from a variable annuity. The following annuities are available in fixed or variable form: 1. Variable Annuities: A Good Retirement Investment? D)I and IV. You can learn more about the standards we follow in producing accurate, unbiased content in our. 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. An investor owning which of the following variable annuity contracts would hold accumulation units? through (l), indicate whether the proper answer is a debit or a credit. A client has purchased a nonqualified variable annuity from a commercial insurance company. features they offer rather than as an investment. Add to folder Fixed annuities are regulated by state insurance departments. C)It will be higher. B)Universal variable life policy. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. When a VA contract is annuitized, the # of annuity units is fixed. The number of annuity units is fixed at the time of annuitization. Distributions from nonqualified variable annuities are: Your 55-year-old client owns a nonqualified variable annuity. C)I and IV. All of the following statements concerning a variable annuity are correct EXCEPT: In recent years, annuity companies have created various types of floors that limit the extent of investment decline from an increasing reference point. Second, equity-indexed annuities don't typically include reinvested dividends when calculating index. 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. The following annuities are available in fixed or variable form: 1. On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). continues payments as long as all annuitants are alive. The growth portion is taxed as a capital gain. vote on proposed changes in investment policy. Reference: 12.3.3 in the License Exam. However, it does guarantee payments for life (mortality). D)II and III. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. Your answer, It will be higher., was correct!. D)I and III. If you die before the payout phase, your beneficiaries may receive a. Your 65-year-old client owns a nonqualified variable annuity. Your customer, still working, informs you that she will be funding a VA 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 VA that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. Balancesheetaccounts:AssetLiabilityOwnersequity:CapitalDrawingIncomestatementsaccounts:RevenueExpenseIncreaseCreditCreditCreditDecreaseCredit(j)CreditNormalBalanceDebit. withdraw funds without any tax consequences. Though there is no beneficiary designation during the annuitization, this is not an issue for this annuitant. For example, individuals can invest in a fixed annuity that credits a specified interest rate, similar to a bank Certificate of Deposit (CD). Introducing Cram Folders! regulated under both securities and insurance laws. The growth portion is taxed as ordinary income. The growth portion is subject to a 10% penalty. 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!. "Variable Annuities: What You Should Know," Page 6. 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. B)variable annuities are classified as insurance products. The number of accumulation units is always fixed throughout the accumulation period. 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. The payout compared to last month's payout. 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. A variable annuity is both an insurance and a securities product. How is the distribution taxed? An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. A client has purchased a nonqualified variable annuity from a commercial insurance company. Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. This can be particularly valuable if they are using a strategy called rebalancing, which is recommended by many financial advisors. Reference: 12.1.4.1 in the License Exam. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. C) suitable due to the death benefit features of a variable annuity. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. Distribution of dividends occurs during the accumulation period. 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 variable annuity is both an insurance and a securities product. Variable annuities are designed to combat inflation risk. & securities licenses. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. In a fixed annuity, the insurance company guarantees the principal and a minimum rate of interest. Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps, Joint and Survivor Annuity: Key Takeaways. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. She may choose to receive monthly payments for the rest of her life. B)IRAs. Your client owns a variable annuity contract with an AIR of 4%. "Variable Annuities: What You Should Know," Page 10. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. Question #11 of 48Question ID: 606816 Life annuity has the largest payout because less risk is assumed by the insurance company. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. If he wants to purchase an annuity and start receiving payments now, what would you suggest? The payout compared to the initial payout upon annuitization. FINRA. Variable Annuities. &\textbf{Increase}&\textbf{Decrease}&\textbf{Normal Balance}\\ An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. Variable Annuities. C)not suitable because a lifetime income rider is only for someone who is already retired Find out how you can intelligently organize your Flashcards. Weight the criteria. 2. C)3800. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. All other tax provisions that apply to nonqualified annuities also apply to qualified annuities. Fixed annuities. Fixed annuities, on the other hand, provide a guaranteed return. Reference: 12.2.1 in the License Exam. Variable Annuitization is an annuity option where income payments received by the policyholder vary based on the investment performance of the annuity. The investor purchased accumulation units. Variable annuity salespeople must be registered with FINRA and the state insurance department. Her agent recommended she choose a variable annuity as a safe haven for the funds. IncreaseDecreaseNormalBalanceBalancesheetaccounts:AssetCreditLiabilityCreditOwnersequity:CapitalCreditDrawingIncomestatementsaccounts:RevenueCredit(j)ExpenseCreditDebit\begin{array}{lccc} The # of accumulation units can rise during the accumulation period, 3. Reference: 12.1.2.1.1 in the License Exam. D)Municipal bonds. 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!. Single premium annuities A single premium annuity is an annuity funded by a single payment. In March, the actual net return to the separate account was 8%. The individual already making the max retirement acct contributions, with cash to invest, would be most suitable for a VA recommendation. Many annuity companies offer a variety of investment options. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. 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)II and IV. \hspace{5pt}\text{Liability}&\text{Credit}&&\\ 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. What Are the Risks of Annuities in a Recession? B)Fixed annuity contract with a discussion regarding timing risk D)Dow Jones Industrial Average. All of the following are characteristics of a variable annuity, except. Please upgrade to Cram Premium to create hundreds of folders! Bear in mind that between the numerous feessuch as investment management fees,mortality fees, and administrative feesand charges for any additional riders, a variable annuitysexpenses can quickly add up. The fees on variable annuities can be quite hefty. U.S. Securities and Exchange Commission. Reference: 12.1.4 in the License Exam. 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. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. Variable annuity contracts were devised to help investors keep pace with inflation. Which of the following are defined as securities? 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. A)value of underlying securities held in the separate account. 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. Your client has $50,000 to invest. 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). How Good of a Deal Is an Indexed Annuity? Variable annuities gave buyers a chance to benefit from rising markets by investing in a menu of mutual funds offered by the insurer. Question #41 of 48Question ID: 606801 C)the SEC. All of the following are traits of a Fixed Annuity, except:AThe purchasing power of a fixed dollar benefit amount decreases as the cost of living increasesBThe insurer's general account assets guarantee the fixed annuity contractCThe insurer bears any investment riskDThe actual rate of interest credited will be based on the state-published Azanswer team is here with the correct answer to your question. The following are all characteristics of variable annuities EXCEPT: [A]The investment portfolio contains insurance protections against losses. Question #47 of 48Question ID: 606813 must precede every sales presentation. A registered representative recommends a variable annuity with an income rider to a client. For example, an individual might buy a nonqualified single premium deferred variable annuity. When the annuitization option is selected, each payment represents both capital and earnings. Who assumes the investment risk in a variable annuity contract? A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. 1. have investment risk that is assumed by the investor, 3. can be sold by someone with only an insurance license, 4. are purchased primarily for their insurance features. D)the rate of return is determined by the underlying portfolio's value. Carefully look at your options when choosing an annuity. 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 Many variable annuities invest the separate account in mutual funds. Question #18 of 48Question ID: 606827 "Variable Annuities: What You Should Know," Page 3. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? It may decrease in value. The growth portion is taxed as a capital gain. This factor is used to establish the dollar amount of the first annuity payment. D)suitable due to the relative safety of the investment. B)Variable annuities. 5. In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. B) Any tax due is deferred. is required by the Securities Act of 1933. C)III and IV Variable annuities must be registered with: A prospectus for a variable annuity contract: When may a variable annuity account be surrendered? Your email address will not be published. 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. Reference: 12.3.2.1 in the License Exam. a life insurance holder dies sooner than expected. A variable annuity's separate account is: The separate account is used for both variable life insurance and variable annuity investments. Variable annuities offer investors choices among a number of complex contract features and options. The separate account performance compared to last month's performance. 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)part earnings and part cost basis But again, the need to designate beneficiaries is not an issue for this annuitant. Any withdrawals you make prior to the age of 59 may also be subject to a 10% tax penalty. 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. For each of the items (a) He earned the Chartered Financial Consultant designation for advanced financial planning, the Chartered Life Underwriter designation for advanced insurance specialization, the Accredited Financial Counselor for Financial Counseling and both the Retirement Income Certified Professional, and Certified Retirement Counselor designations for advance retirement planning. The remainder of the premium is invested in the separate account. 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. C)Life annuity. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. An annuity may be purchased under all of the following methods EXCEPT: Your answer, periodic payment immediate annuity., was correct!.
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the following are all characteristics of variable annuities except:Be the first to comment on "the following are all characteristics of variable annuities except:"