CAV would consider the date from which interest begins to accrue on the bond (the dated date), the bond's maturity date, and the bonds original offering yield. C)II and IV. Life Insurance vs. Annuity: What's the Difference? 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. Immediate annuities are also available in fixed or variable forms. Can I Borrow from My Annuity for a House Down Payment? the VA recommendation would not be suitable. Since the client is older than 59 at the time of distribution, the additional 10% penalty tax is not incurred. A client has purchased a nonqualified variable annuity from a commercial insurance company. Contributions to a nonqualified annuity are made with the owner's after-tax dollars. Variable Annuities: A Good Retirement Investment? Many annuity companies offer a variety of investment options. Unit 12: Variable Annuities Flashcards | Chegg.com B)suitable regardless of funding sources D)Joint and last survivor annuity. GuranteedExamLife Flashcards by Gabriel Martinez | Brainscape Variable annuities must be registered with: A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. The following annuities are available in fixed or variable form: 1. The holder of a VA receives the largest monthly payments under which of the following payout options? B)value of annuity units. \hspace{5pt}\text{Asset}&&\text{Credit}&\\ Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. Therefore, variable annuities must be registered with the state insurance commission and the SEC. Lifetime annuities A lifetime annuity provides income for the remaining life of a person (called the annuitant). A customer has an investment objective of keeping pace with inflation while assuming moderate risk. Reference: 12.3.4 in the License Exam. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. 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. A)II and IV. D. insurance companies keep variable annuity funds in separate accounts from other insurance products. 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. 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. Single premium annuities A single premium annuity is an annuity funded by a single payment. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? If you need to withdraw money from the account because of a financial emergency, you may face surrender fees. the state banking commission. Reference: 12.1.2.1.1 in the License Exam. Annuities are complicated products, so that may be easier said than done. If an ins. Generally the most that creditors can access is the payments as they are made, since the money the annuity owner gave the insurance company now belongs to the company. C)the payout plans provide the client income for life. C)II and III. Distribution can take place before or during any solicitation for sale. A variable annuity is both an insurance and a securities product. D)Variable annuity. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. Question #27 of 48Question ID: 606818 Therefore, variable annuities must be registered with the state insurance commission and the Securities and Exchange Commission. Chapter 4: Annuities Flashcards | Chegg.com contract. 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. Required fields are marked *. When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). Reference: 12.1.2.1.2 in the License Exam. Meanwhile, options like an annuity can provide a guaranteed income during, With a deferred annuity, you make a one-time payment to the insurance. is required by the Securities Act of 1933. B)corporate stock. When the second party dies, all payments cease. 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? 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. Distribution can take place before or during any solicitation for sale. A separate account will invest in a number of different securities. The # of VA accumulation units can rise during the accumulation period when additional units are being purchased. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. 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!. If an annuitant lives longer than expected, the ins. Reference: 12.3.3 in the License Exam. Variable Annuities | Investor.gov D)value of accumulation units. U.S. Securities and Exchange Commission. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. Your answer, Variable annuities., was correct!. They are also riddled with fees, which can cut into profits. Flexible premium annuities A flexible premium annuity is an annuity that is intended to be funded by a series of payments. Introducing Cram Folders! Types of Annuities Flashcards by Liliana Benavides | Brainscape D) The fact that periodic payments into the contract may increase or decrease. But again, the need to designate beneficiaries is not an issue for this annuitant. . Reference: 12.3.3 in the License Exam. Any withdrawals you make prior to the age of 59 may also be subject to a 10% tax penalty. Annuities basics | III A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. B)fixed in value until the holder retires. Generally, a life only contract pays the most per month because payments cease at the annuitant's death. A)I and IV. For example, an individual might buy a nonqualified single premium deferred variable annuity. Deferred annuities, also referred to as investment annuities, are available in fixed . C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. 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 Investopedia does not include all offers available in the marketplace. Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. A)II and III 2. C)municipal bonds. This would not align with the couple's criteria for coverage as long as they both live. Question #24 of 48Question ID: 606806 B) Any tax due is deferred. C)number of accumulation units. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59 1/2. Variable annuities offer investors choices among a number of complex contract features and options. CDs insured by the FDIC. Anthony Battle is a CERTIFIED FINANCIAL PLANNER professional. Your answer, waiver of premium, was correct!. a life insurance holder dies sooner than expected. Based on the client's profile, which of the following would be the best recommendation? Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. A)equity funds. For a retired person, which of the following investments would provide the greatest protection against inflation? Reference: 12.3.3 in the License Exam. D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. \hspace{5pt}\text{Revenue}&\text{Credit}&(j)&\\ C) The entire amount is taxed as ordinary income, because it is not life insurance. Question #18 of 48Question ID: 606827 For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. Nonqualified annuities A nonqualified annuity is one purchased separately from, or outside of, a taxfavored retirement plan. Please upgrade to Cram Premium to create hundreds of folders! Find out how you can intelligently organize your Flashcards. You can buy an annuity with either a lump sum or a series of payments, and the accounts value will grow accordingly. Question #40 of 48Question ID: 606800 The growth portion is taxed as ordinary income. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. The growth portion is taxed as ordinary income. The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. \hspace{5pt}\text{Capital}&\text{Credit}&&\\ A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. Variable Annuities. Only variable annuities have payout plans that provide the client income for life. A)variable annuities will protect an investor against capital loss. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. D)0. Mortality assumptions are based on life expectancy or mortality tables prepared by ins. The number of annuity units rises once annuitization begins. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. A VA is a security & must be registered with the SEC, not FINRA. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. D)Investment risk. The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. For a retired person, which of the following investments would provide the greatest protection against inflation? A)number of annuity units. No other type of financial product can promise to do this. vote for the investment adviser.4. The remainder of the premium is invested in the separate account. All of the following statements about variable annuities are true EXCEPT: A) a minimum rate of return is guaranteed. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. 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. The separate account is NOT likely to invest in: vote on proposed changes in investment policy. Changes in payments on a variable annuity correspond most closely to fluctuations in the: Once a customer annuitizes a variable annuity, which of the following statements are TRUE? There is no beneficiary in the event the annuitant dies. One of the following would achieve that objective but a suitability discussion regarding it's risk should also occur. The value of the separate account is now $30,000. In general, annuities have the following features. A)II and IV. co. will have to continue payments longer than expected. In these regards, the low interest rate environment in the US market, in spite of the slight interest rate rise in 2017, has eroded the investment income of Use LEFT and RIGHT arrow keys to navigate between flashcards; Use UP and DOWN arrow keys to flip the card; An investor who has purchased a nonqualified variable annuity has the right to: 1. vote on proposed changes in investment policy.2. Here is how guaranteed lifetime annuities work. Annuity death benefits are generally paid in a lump sum. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. As part of his profile, he stresses that he has had uncomfortable experiences in the past with the stock market and is not inclined to invest in anything that is based on stock market performance and would opt for principal protection instead. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. C) a VA contract does not guarantee any type of return. C)Money market fund. It is a variable annuity. Her intent was to use the funds for the down payment on a house after graduation. Which Earns More: Variable or Fixed Annuities? Immediate life annuity with 10-year period certain. Reference: 12.3.1 in the License Exam. C)the invested money will be professionally managed according to the issuers' investment objectives. continues payments as long as all annuitants are alive. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. Which of the following recommendations would BEST meet the customer profile? Reference: 12.3.2.1 in the License Exam. A variable annuity is a security and must be registered with the SEC, not FINRA. C. variable annuities are classified as insurance products. 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. required to be located off of the company's premises. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. 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. C)3800. b. Are Variable Annuities Subject to Required Minimum Distributions? a variable annuity guarantees an earnings rate of return. B) the state insurance department. C)It will be higher. B)100% taxable. C)the yield is always higher than bond yields. 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 entire amount is taxed as ordinary income. Azanswer team is here with the correct answer to your question. 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. a variable annuity guarantees an earnings rate of return. You can tailor the income stream to suit your needs. "Variable Annuities: What You Should Know," Page 3. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. D)I and III. B)Variable annuities. Must provide full and fair disclosure, 2. [D]The portfolio may contain mutual fund shares. 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. 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. Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? Usually the term annuity relates to a contract between an individual and a life insurance company. C)not suitable because a lifetime income rider is only for someone who is already retired Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs. All other tax provisions that apply to nonqualified annuities also apply to qualified annuities. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. Question #22 of 48Question ID: 606803 C)with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually A)II and IV. Question #33 of 48Question ID: 606832 C)the SEC. There are also immediate annuities, which begin paying income right away. You dont have to worry about it anymore. PDF Variable Annuities: What You Should Know - SEC C)such an annuity is designed to combat inflation risk. Based on this information the RR should: D)II and III. A)defined contribution plans. D)II and IV. 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. "Variable Annuities: What You Should Know," Page 10. features they offer rather than as an investment. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. Question #26 of 48Question ID: 606811 Carefully look at your options when choosing an annuity. Introducing Cram Folders! These contracts cover both lives and will continue to make payments until the last spouse dies. Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. 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. Your answer, Life annuity., was correct!. What is her total tax liability? Variable annuities are riskier than fixed annuities because the underlying investments may lose value. The annuity unit's value represents a guaranteed return. U.S. Securities and Exchange Commission. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. A separate account will invest in a number of different securities. A)I and IV. have investment risk that is assumed by the investor. The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. For anyone who may need access to the sum invested at a later time, a VA would not be considered a suitable recommendation. A)100% tax free. Which of the following recommendations would best meet the customer profile? The following are all characteristics of variable annuities EXCEPT: [A]The investment portfolio contains insurance protections against losses. When a VA contract is annuitized, the # of annuity units is fixed. Payments from a variable annuity depend on the securities' value in the separate account's underlying investment portfolio. The annuity unit's value represents a guaranteed return. Question #46 of 48Question ID: 606796 Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. 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!. There is no clear answer to this. Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? 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. B)Two-thirds of the withdrawal is taxable as ordinary income. \hspace{5pt}\text{Expense}&&\text{Credit}&\text{Debit}\\ An annuitant assumes the investment risk of a variable annuity and is not protected by the insurance company from capital losses. The value of the separate account is now $30,000. can be sold by someone with only an insurance license Reference: 12.1.4 in the License Exam. A)Joint tenants annuity. IncreaseDecreaseNormalBalanceBalancesheetaccounts:AssetCreditLiabilityCreditOwnersequity:CapitalCreditDrawingIncomestatementsaccounts:RevenueCredit(j)ExpenseCreditDebit\begin{array}{lccc} All of the following are characteristics of variable annuity contracts Your answer, The entire $10,000 is taxable as ordinary income., was correct!. When the annuitization option is selected, each payment represents both capital and earnings. As with most retirement account options, withdrawals before the age of 59 will result in a 10% tax penalty. Pretend you are on the leadership team of a manufacturing company that is currently challenged by low-cost competition. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. Find out how you can intelligently organize your Flashcards. B)cost of living. 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. 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. However, it does guarantee payments for life (mortality). Future annuity payments will vary according to the separate account's performance. The number of annuity units is fixed at the time of annuitization. Reference: 12.1.4.2 in the License Exam. 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. A)2800. Oct. 2014, Subjects: Annuity Contracts,Purchasing Annuities,Receiving Distribution from Annuities,Variable Life. Reference: 12.1.1 in the License Exam. A VA does not guarantee an earnings rate because earnings will depend on the performance of the separate account. Which of the following recommendations would best meet the customer profile? 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. A)Fixed annuity contract with a discussion regarding purchasing power risk Single premium annuities are often funded by rollovers or from the sale of an appreciated asset. 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). 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. [C]The portfolio is professionally managed. continues payments as long as one annuitant is alive. approve changes in the plan portfolio. &\textbf{Increase}&\textbf{Decrease}&\textbf{Normal Balance}\\ How Good of a Deal Is an Indexed Annuity? Copyright 2023, Insurance Information Institute, Inc. The payment might be invested for growth for a long period of timea single premium deferred annuityor invested for a short time, after which the payout beginsa single premium immediate annuity. B)I and IV. Reference: 12.3.1 in the License Exam. 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!. C)III and IV. B)4200. 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. Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. Variable annuities must be registered with: In a fixed annuity, the insurance company guarantees the principal and a minimum rate of interest. 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. U.S. Securities and Exchange Commission. 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 earnings on dollars invested into a variable annuity accumulate tax deferred, which is why variable annuities are popular products for retirement accumulation. You have created 2 folders. C)annuity units. must precede every sales presentation. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. must provide full and fair disclosure. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. A)accumulation shares. 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. The growth portion is taxed as a capital gain. The # of accumulation units can rise during the accumulation period, 3. Each of the remaining statements are true. This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. The fund is kept within an IHT protected pension trust and can be passed down using a spousal bypass trust (SBT) can be used with personal pension plans to p Any purchase of securities will contain an element of risk. The time period depends on how often the income is to be paid. a variable annuity guarantees payments for life. These include white papers, government data, original reporting, and interviews with industry experts. Her agent recommended she choose a variable annuity as a safe haven for the funds. Your answer, Purchasing power risk., was correct!.
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