A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. Single premium annuities are often funded by rollovers or from the sale of an appreciated asset. 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!. \text{Income statements accounts:}&&&\\ All of the following are characteristics of a variable annuity, except. The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. C)I and IV. Distribution can take place before or during any solicitation for sale. All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. D)value of accumulation units. A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. You can tailor the income stream to suit your needs. B)FINRA. Question #18 of 48Question ID: 606827 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. A lifetime immediate annuity converts an investment into a stream of payments that last until the annuity owner dies. The most important consideration in purchasing a VA is to be aware that benefit payments will fluctuate with the investment performance of the separate account. Variable annuities are designed to combat inflation risk. Distributions to the annuitant will fluctuate during the payout period. D)I 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. Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. During the payout period, payments are based on a fixed number of annuity units established when the contract was annuitized. C)the SEC. The accumulation unit's value is used to calculate the total value of the account. Question #19 of 48Question ID: 606826 [C]The portfolio is professionally managed. features they offer rather than as an investment. Reference: 12.1.2 in the License Exam, Question #39 of 48Question ID: 721469 Your answer, Variable annuities., was correct!. 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. D)It cannot be determined until the April return is calculated. As with most retirement account options, withdrawals before the age of 59 will result in a 10% tax penalty. Must provide full and fair disclosure, 2. contract. a variable annuity does not guarantee an earnings rate of return. As part of the registration requirements, a prospectus must be filed & distributed to prospective investors. 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. The value of accumulation and annuity units varies with the investment performance of the separate account. 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. 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. Deferred annuities A deferred annuity is designed to collect premiums and accrue investment income over an extended period for payout at a later timefor example, when an individual retires. used to escrow late or otherwise delinquent premium payments. Reference: 12.3.3 in the License Exam. \hspace{5pt}\text{Asset}&&\text{Credit}&\\ Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. CDs insured by the FDIC. One of the following would achieve that objective but a suitability discussion regarding it's risk should also occur. Flexible premium annuities A flexible premium annuity is an annuity that is intended to be funded by a series of payments. The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. We also reference original research from other reputable publishers where appropriate. Reference: 12.1.1 in the License Exam. Her agent recommended she choose a variable annuity as a safe haven for the funds. The growth portion is taxed as a capital gain. Compound Accreted Value (CAV) of a municipal bond is used as the starting point in determining the value of a zero coupon bond. withdraw funds without any tax consequences. 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. Reference: 12.3.3 in the License Exam. a life insurance holder dies sooner than expected. This recommendation is: A) suitable due to the relative safety of the investment. variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic pay-ments to you, beginning either immediately or at some future date. Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. Weight the criteria. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. Why Is It Important To Have Your Financial Plan And Goals In Place When Considering Investments? Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). B)Universal variable life policy. All of the following statements about variable annuities are true EXCEPT: A) a minimum rate of return is guaranteed. What Are the Distribution Options for an Inherited Annuity? The fees on variable annuities can be quite hefty. The following are all characteristics of variable annuities EXCEPT: [A]The investment portfolio contains insurance protections against losses. The # of VA accumulation units can rise during the accumulation period when additional units are being purchased. 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 . Reference: 12.3.3 in the License Exam. The accumulation unit's value is used to calculate the total value of the account. The growth portion is taxed as a capital gain. In a fixed annuity, the insurance company guarantees the principal and a minimum rate of interest. Question #47 of 48Question ID: 606813 The number of annuity units rises once annuitization begins. A)I and IV. This factor is used to establish the dollar amount of the first annuity payment. D) unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. For a retired person, which of the following investments would provide the greatest protection against inflation? a variable annuity does not guarantee an earnings rate of return. Question #26 of 48Question ID: 606811 If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? A)unsuitable because the return on something as conservative as a variable annuity tends to be low. Distribution can take place before or during any solicitation for sale. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: are purchased primarily for their insurance features Variable annuity salespeople must be registered with FINRA and the state insurance department. D)Variable annuity. D)Joint and last survivor annuity. D)an accounting measure used to determine payments to the owner of the variable annuity. C)100% tax deferred. Your email address will not be published. B)cost of living. 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. Reference: 12.1.4.1 in the License Exam. This compensation may impact how and where listings appear. A)Corporate debt securities Reference: 12.3.3 in the License Exam, Question #34 of 48Question ID: 606834 To prevent this situation individuals can buy a guaranteed period with the immediate annuity. The payout compared to last month's payout. 2003-2023 Chegg Inc. All rights reserved. A) There is no risk in a variable annuity. continues payments as long as one annuitant is alive. She will receive the annuity's entire value in a lump-sum payment. All of the following statements about variable annuities are true EXCEPT: Question #45 of 48Question ID: 606795 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. Variable annuity salespeople must register with all of the following EXCEPT: C)Growth mutual funds C) suitable due to the death benefit features of a variable annuity. Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? Immediate annuities An immediate annuity is designed to start paying an income one time period after the immediate annuity is bought. 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. In addition, an element of risk must be present. Reference: 12.1.2 in the License Exam. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. Most annuities will not allow you to withdraw additional funds from the account once the payout phase has begun. b. Upon John's death during the accumulation period, Sue takes a lump-sum payment. The most popular type of variable annuity is a deferred annuity. Question #37 of 48Question ID: 606817 In the case of deferred annuities, this is often referred to as the accumulation phase. 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? Question #20 of 48Question ID: 606808 co. will have to continue payments longer than expected. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: The number of accumulation units is always fixed throughout the accumulation period. 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. 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!. As with all tax-deferred accounts, municipal bonds are not appropriate investments because interest earned on municipals is already tax exempt at the federal level. Advantages And Disadvantages Of Adjustable Life, Case Study: Cimb-Principal Asset Management Berhad. He originally invested $29,000 4 years ago; it now has a value of $39,000. Question #11 of 48Question ID: 606816 The tax on this is $2,800 ($10,000 x 28%). A)2800. D. insurance companies keep variable annuity funds in separate accounts from other insurance products. It is a variable annuity. D) a VA contract is subject to fluctuating values due to market fluctuations in the underlying separate accounts. Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. Life with period certain will produce a smaller check for life because the insurance company will guarantee payments to a beneficiary for a certain period of time designated in the contract should the annuitant die within that period. Reference: 12.1.2.1.1. in the License Exam. the state insurance commission. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. The number of accumulation units can rise during the accumulation period. The time period depends on how often the income is to be paid. There is a common apprehension that if an individual starts an immediate lifetime annuity and dies soon after that, the insurance company keeps all of the investment in the annuity. 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. Variable Annuities: A Good Retirement Investment? If he wants to purchase an annuity and start receiving payments now, what would you suggest? D)money market funds. Many variable annuities invest the separate account in mutual funds. Brainstorm a list of criteria by which you would select and prioritize projects. An equity indexed annuity is a type of fixed annuity, but looks like a hybrid. People who own an immediate annuity (that is, who are receiving money from an insurance company), are afforded some protection from creditors. Future annuity payments will vary according to the separate account's performance. 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!. For this potential advantage, the investor, rather than the ins. a variable annuity guarantees payments for life. Reference: 12.1.4 in the License Exam. Second, equity-indexed annuities don't typically include reinvested dividends when calculating index. These contracts cover both lives and will continue to make payments until the last spouse dies. C)the number of annuity units is fixed, and their value remains fixed. C)prime rate. 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. All other tax provisions that apply to nonqualified annuities also apply to qualified annuities. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. A)not suitable Contributions to a nonqualified variable annuity are not tax deductible. The second phase is triggered when the annuity owner asks the insurer to start the flow of income, often referred to as the payout phase. However, it does guarantee payments for life (mortality). Investopedia requires writers to use primary sources to support their work. A)the yield is always higher than mortgage yields. Question #33 of 48Question ID: 606832 How a Fixed Annuity Works After Retirement. 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. 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. B) the state insurance department. can be sold by someone with an insurance license only. 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. C) The entire $10,000 is taxable as ordinary income. 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. D)accumulation units. Periodic payments are not a consideration because normally the payments into an annuity are level or in a lump sum. 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. The upside was the possibility of higher returns during the accumulation phase and a larger income during the payout phase. The annuitized payments are viewed for tax purposes as (The exception is the fixed income annuity, which has a moderate to high payout that rises as the annuitant ages). C)III and IV. holder lives longer than expected, 4. a life ins. Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? Question #12 of 48Question ID: 606814 Which of the following recommendations would best meet the customer profile? 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 A)equity funds. 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. D)I and IV, Universal variable life policies are insurance company products that should be purchased primarily for the insurance features they offer rather than as an investment. The customer, in the accumulation stage of the annuity, is holding accumulation units. Reference: 12.1.4.2 in the License Exam. Annuity death benefits are generally paid in a lump sum. Single premium annuities A single premium annuity is an annuity funded by a single payment. C)none of these. can be sold by someone with only an insurance license 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. 4. For example, individuals can invest in a fixed annuity that credits a specified interest rate, similar to a bank Certificate of Deposit (CD). 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. C) a VA contract does not guarantee any type of return. 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. D)suitable due to the relative safety of the investment. Variable Annuities. Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. Question #28 of 48Question ID: 606821 IncreaseDecreaseNormalBalanceBalancesheetaccounts:AssetCreditLiabilityCreditOwnersequity:CapitalCreditDrawingIncomestatementsaccounts:RevenueCredit(j)ExpenseCreditDebit\begin{array}{lccc} Question #42 of 48Question ID: 606830 How to Rollover a Variable Annuity Into an IRA. A)each annuity unit's value and the number of annuity units vary with time. If the customer takes a withdrawal of $10,000, what are the tax consequences? 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. Variable annuity contracts were devised to help investors keep pace with inflation. B)variable annuities are classified as insurance products. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. C)I and IV. The earnings on dollars invested into a variable annuity accumulate tax deferred, which is why variable annuities are popular products for retirement accumulation. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. 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"}}.
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