Variable annuity salespeople must register with all of the following EXCEPT: Your answer, the state banking commission., was correct!. Single premium annuities A single premium annuity is an annuity funded by a single payment. Which of the following recommendations would best meet the customer profile? used to escrow late or otherwise delinquent premium payments. A)III and IV. The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. Chapter 4: Annuities Flashcards | Chegg.com FINRA. Many variable annuities invest the separate account in mutual funds. 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. \hspace{5pt}\text{Capital}&\text{Credit}&&\\ D)variable annuities offer the investor protection against capital loss. A)exempt from taxes B)each annuity unit's value varies with time, but the number of annuity units is fixed. C)100% tax deferred. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. A)I and IV. A)the state banking commission. Reference: 12.1.2.1.2 in the License Exam. The payout compared to the initial payout upon annuitization. Question #44 of 48Question ID: 606797 Immediate annuities An immediate annuity is designed to start paying an income one time period after the immediate annuity is bought. D)accumulation units. C) a VA contract does not guarantee any type of return. have investment risk that is assumed by the investor D. insurance companies keep variable annuity funds in separate accounts from other insurance products. B)a minimum rate of return is guaranteed. People who own an immediate annuity (that is, who are receiving money from an insurance company), are afforded some protection from creditors. Your answer, waiver of premium, was correct!. Variable Annuities: A Good Retirement Investment? C)Growth mutual funds B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero A)variable annuities may only be sold by registered representatives. If one purchases an annuity for a set price, the issuing company would invest the funds and hold them until they are supposed to be disbursed, generally based on the owner's age. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. Which of the following are defined as securities? An investor who has purchased a nonqualified variable annuity has the right to: Which of the following statements regarding variable annuities are TRUE? How to Rollover a Variable Annuity Into an IRA. D)Any tax due is deferred. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. The most suitable option and one considered effective for married couples is a single joint and last survivor contract. He originally invested $29,000 4 years ago; it now has a value of $39,000. Reference: 12.2.1 in the License Exam. What Are the Distribution Options for an Inherited Annuity? However, it does guarantee payments for life (mortality). Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. If a 42-year-old customer has been depositing money in a variable annuity for 5 years, and he plans to stop investing but has no intention of withdrawing any funds for at least 20 years, he is holding: Reference: 12.1.2 in the License Exam, Question #23 of 48Question ID: 901858 Your 65-year-old client owns a nonqualified variable annuity. It credits a minimum rate of interest, just as a fixed annuity does, but its value is also based on the performance of a specified stock indexusually computed as a fraction of that indexs total return. The value of the separate account is now $30,000. The contract has a schedule of surrender charges, beginning with a 7% charge in the first year, and declining by 1% each year. 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. . When money is deposited into the annuity, it is purchasing accumulation units. When the first party dies, the annuity payment is made to the survivor. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: Your client owns a variable annuity contract with an AIR of 4%. 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. A)the number of annuity units becomes fixed when the contract is annuitized. An individual retirement annuity is an investment vehiclesimilar to an individual retirement accountthat is offered by insurance companies. Variable annuities were introduced in the 1950s as an alternative to fixed annuities, which offer a guaranteedbut often lowpayout during the annuitization phase. Though there is no beneficiary designation during the annuitization, this is not an issue for this annuitant. All other tax provisions that apply to nonqualified annuities also apply to qualified annuities. Variable annuity salespeople must register with all of the following EXCEPT: Variable annuity salespeople must be registered with FINRA and the state insurance department. Typically, they allow one withdrawal each year during the accumulation phase. a variable annuity guarantees an earnings rate of return. The downside was that the buyer was exposed to market risk, which could result in losses. Variable annuities offer investors choices among a number of complex contract features and options. All of the following statements about variable annuities are true EXCEPT: A) a minimum rate of return is guaranteed. 3. 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. C)III and IV. \hspace{5pt}\text{Drawing}&&&\\ B)value of annuity units. Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. 2003-2023 Chegg Inc. All rights reserved. required to be located off of the company's premises. To prevent this situation individuals can buy a guaranteed period with the immediate annuity. This can be particularly valuable if they are using a strategy called rebalancing, which is recommended by many financial advisors. A life annuity is an insurance product that features a predetermined periodic payout amount until the death of the annuitant. Question #43 of 48Question ID: 606809 Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. For a retired person, which of the following investments would provide the greatest protection against inflation? D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. A variable annuity's separate account is: If they buy a variable annuity, their money can be invested in stocks, bonds or mutual funds. Once the contract is annuitized, monthly payments to the customer are: On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). B)a majority vote from the shareholders is required to change the investment objectives. The separate account performance compared to an assumed interest rate. Question #17 of 48Question ID: 606802 Variable annuities are regulated by state insurance departments and the federal Securities and Exchange Commission. Introducing Cram Folders! If an annuitant lives longer than expected, the ins. You can tailor the income stream to suit your needs. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. As with all tax-deferred accounts, muni bonds are not appropriate investments because interest earned on munis is already tax exempt at the federal level. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59 1/2. \hspace{5pt}\text{Asset}&&\text{Credit}&\\ 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!. Is required by the Securities Act of 1933, 4. It may decrease in value. The value of a variable annuity is based on the performance of an underlying portfolio of sub accounts selected by the annuity owner. audio not yet available for this language, {"cdnAssetsUrl":"","site_dot_caption":"Cram.com","premium_user":false,"premium_set":false,"payreferer":"clone_set","payreferer_set_title":"Variable Annuities","payreferer_url":"\/flashcards\/copy\/variable-annuities-5097323","isGuest":true,"ga_id":"UA-272909-1","facebook":{"clientId":"363499237066029","version":"v12.0","language":"en_US"}}. If this client is in the payout phase, how would his April payment compare to his March payment? There are also immediate annuities, which begin paying income right away. There is no clear answer to this. 2. 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 your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? A)II and IV. These include white papers, government data, original reporting, and interviews with industry experts. must be filed with FINRA. are purchased primarily for their insurance features. You have created 2 folders. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? All of the following statements regarding variable annuities are true EXCEPT: A. variable annuities may only be sold by registered representatives. Question #18 of 48Question ID: 606827 This factor is used to establish the dollar amount of the first annuity payment. Question #37 of 48Question ID: 606817 Question #41 of 48Question ID: 606801 Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? The number of accumulation units can rise during the accumulation period. Which Earns More: Variable or Fixed Annuities? Life Insurance vs. Annuity: What's the Difference? 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.