GuranteedExamLife Flashcards by Gabriel Martinez | Brainscape continues payments as long as one annuitant is alive. D)money market funds. A)not suitable Only variable annuities have payout plans that provide the client income for life. d. Single premium annuities are often funded by rollovers or from the sale of an appreciated asset. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. A) There is no risk in a variable annuity. through (l), indicate whether the proper answer is a debit or a credit. The growth portion is taxed as a capital gain. 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. If the owner of a variable annuity dies during the accumulation period, any death benefit will: Your answer, be paid to a designated beneficiary., was correct!. [D]The portfolio may contain mutual fund shares. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. B)I and III. Variable annuities gave buyers a chance to benefit from rising markets by investing in a menu of mutual funds offered by the insurer. If the owner of a VA dies during the accumulation period, any death benefit will: B) be paid to the issuing company to complete the plan, C) be paid to the designated beneficiary, D) be paid to any legal heirs as recognized by the annuitant's state of domicile. Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps, Joint and Survivor Annuity: Key Takeaways. If the customer takes a withdrawal of $10,000, what are the tax consequences? Reference: 12.1.2 in the License Exam. A)II and IV. A)the yield is always higher than mortgage yields. a. vote on proposed changes in investment policy. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. 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. Which of the following recommendations would best meet the customer profile? If you need to withdraw money from the account because of a financial emergency, you may face surrender fees. approve changes in the plan portfolio.3. An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. A)I and IV. This would not align with the couple's criteria for coverage as long as they both live. He makes the following four statements, all of which are true EXCEPT C) Life annuity with 10 year period certain. 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 . Distribution can take place before or during any solicitation for sale. &\textbf{Increase}&\textbf{Decrease}&\textbf{Normal Balance}\\ All of the following are characteristics of a variable annuity, except. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: Variable Annuity: Definition and How It Works, Vs. Fixed Annuity Premiums made into the annuity purchase accumulation units. A fixed annuity is a contract between the policyholder and an insurance company. B) Any tax due is deferred. Based on the client's profile, which of the following would be the best recommendation? Reference: 12.3.3 in the License Exam. The growth portion is subject to a 10% penalty. For this potential advantage, the investor, rather than the ins. used for the investment of funds paid by contract holders. A variation of lifetime annuities continues income until the second one of two annuitants dies. A)I and IV. The number of accumulation units can rise during the accumulation period. must precede every sales presentation. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. 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 What is her total tax liability? A)II and IV. All of the following are characteristics of variable annuity contracts Reference: 12.3.3 in the License Exam. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. C)none of these. Reference: 12.1.2 in the License Exam. co. actuaries. The separate account performance compared to an assumed interest rate. 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). 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. All Rights Reserved. C)the number of annuity units is fixed, and their value remains fixed. 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. B. separate account may consist of mutual funds. For a retired person, which of the following investments would provide the greatest protection against inflation? The accumulation unit's value is used to calculate the total value of the account. The earnings are taxable but the cost basis is returned tax free. & securities licenses. Based only on these facts, the variable annuity recommendation is A)II and IV. Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. 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? Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? Variable annuities must be registered with: A prospectus for a variable annuity contract: When may a variable annuity account be surrendered? The separate account is NOT likely to invest in: Your answer, municipal bonds., was correct!. Question #45 of 48Question ID: 606795 In the case of deferred annuities, this is often referred to as the accumulation phase. withdraw funds without any tax consequences. Fixed annuities typically earn at a lower, stable rate. The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. What is the taxable consequence of this withdrawal to your client? Question #33 of 48Question ID: 606832 You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. What Are the Risks of Annuities in a Recession? required to be located off of the company's premises. A)contact the issuer of the clients existing VA contract to facilitate the clients surrender of the contract. However, it does guarantee payments for life (mortality). Each of the remaining statements are true. The separate account is NOT likely to invest in: The earnings on dollars invested into a variable annuity accumulate tax-deferred, which is why variable annuities are popular products for retirement accumulation. Brainstorm a list of criteria by which you would select and prioritize projects. The upside was the possibility of higher returns during the accumulation phase and a larger income during the payout phase. If an ins. D) The ordinary income on the proceeds over the cost basis plus 10% of the net gain (if any) if Sue is younger than 59- years old. Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. D)Any tax due is deferred. Generally, a life only contract pays the most per month because payments cease at the annuitant's death. There is no clear answer to this. A separate account will invest in a number of different securities. The growth portion is taxed as ordinary income. The holder of a VA receives the largest monthly payments under which of the following payout options? These contracts come with high surrender charges. All of the following statements about variable annuities are true EXCEPT: A) a minimum rate of return is guaranteed. 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. Advantages And Disadvantages Of Adjustable Life, Case Study: Cimb-Principal Asset Management Berhad. To prevent this situation individuals can buy a guaranteed period with the immediate annuity. 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. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. B)corporate stock. During the payout period, payments are based on a fixed number of annuity units established when the contract was annuitized. The remainder of the premium is invested in the separate account. Fixed Annuity, Retirement Annuities: Know the Pros and Cons. If this client is in the payout phase, how would his April payment compare to his March payment? continues payments as long as all annuitants are alive. 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. 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 state banking commission. Variable annuities should be considered long-term investments due to the limitations on withdrawals. It may decrease in value. The money paid in will be returned tax free, but the earnings portion will be taxed as ordinary income. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? do not have a separate account For each of the items (a) A)each annuity unit's value and the number of annuity units vary with time. Deferred Annuity Definition, Types, How They Work, What Is a Fixed Annuity? Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. The following annuities are available in fixed or variable form: 1. Variable annuity salespeople must be registered with FINRA and the state insurance department. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. Copyright 2023, Insurance Information Institute, Inc. D)each annuity unit's value is fixed, but the number of annuity units varies with time. A life with period certain contract guarantees payments for a specified number of years to a named beneficiary if the annuitant dies during that time. 2. D. Value of each annuity unit each month. Are There Penalties for Withdrawing Money From Annuities? Reference: 12.2.1 in the License Exam. There are many categories of annuities. Annuities are financial products intended to enhance retirement security. Though its stated return might not be as high as the other choices' potential returns, only a fixed annuity fits the objective and risk averse traits of his client. used to escrow late or otherwise delinquent premium payments. The value of a variable annuity is based on the performance of an underlying portfolio of sub accounts selected by the annuity owner. D)II and III. Reference: 12.1.2.1.1. in the License Exam. For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? An annuity is an agreement for one person or organization to pay another a series of payments. 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. 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. A security is any investment for profit with management performed by a third party. B)a minimum rate of return is guaranteed. A)II and III. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. 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) the state insurance department. 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. Variable Annuities Flashcards - Cram.com Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. B)mutual fund units. B)I and III. Chapter 12: Variable Annuities. Some state statutes and court decisions also protect some or all of the payments from those annuities. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. C)II and IV. 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. PDF Variable Annuities: What You Should Know - SEC 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? There are also immediate annuities, which begin paying income right away. The number of annuity units is fixed at the time of annuitization. All of the following statements concerning a variable annuity are correct EXCEPT: 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. 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. The annuity unit's value represents a guaranteed return. Many variable annuities invest the separate account in mutual funds. U.S. Securities and Exchange Commission. c. The separate account provides for a guaranteed minimum return. 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. Most variable annuities are structured to offer investors many different fund alternatives. the VA recommendation would not be suitable. regulated under both securities and insurance laws. The amount that is paid doesnt depend on the age (or continued life) of the person who buys the annuity; the payments depend instead on the amount paid into the annuity, the length of the payout period, and (if its a fixed annuity) an interest rate that the insurance company believes it can support for the length of the payout period. Therefore, variable annuities must be registered with the state insurance commission and the SEC. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. For a retired person, which of the following investments would provide the greatest protection against inflation? Question #27 of 48Question ID: 606818 All of the following are characteristics of a variable annuity, except C)prime rate. She will receive the annuity's entire value in a lump-sum payment. The client agrees to purchase the contract and informs the RR that he will be cashing out a VA he purchased 2 years ago to fund the new contract and will forward the check as soon as he receives it.
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