The beneficiary is taxed at ordinary income rates during the year the lump sum is received. All of the following statements concerning a variable annuity are correct EXCEPT: A. the invested money will be professionally managed according to the issuers' investment objectives. B)Variable annuities. Please sign in to access member exclusive content. If this client is in the payout phase, how would his April payment compare to his March payment? Your answer, The entire $10,000 is taxable as ordinary income., was correct!. Her intent was to use the funds for the down payment on a house after graduation. There is no clear answer to this. Are Variable Annuities Subject to Required Minimum Distributions? Variable annuities are regulated by state insurance departments and the federal Securities and Exchange Commission. C)suitable due to the death benefit features of a variable annuity. \hspace{5pt}\text{Drawing}&&&\\ The # of annuity units is fixed at the time of annuitization, 4. C) The entire $10,000 is taxable as ordinary income. For a retired person, which of the following investments would provide the greatest protection against inflation? Reference: 12.2.1 in the License Exam. The number of accumulation units is always fixed throughout the accumulation period. A)variable annuities will protect an investor against capital loss. &\textbf{Increase}&\textbf{Decrease}&\textbf{Normal Balance}\\ D)with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed, With guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is not guaranteed because payments stop when the annuitant has received an amount equal to the principal account value or the contract term ends. A) The fact that the annuity payment may increase or decrease. B)a minimum rate of return is guaranteed. C)I and IV. Reference: 12.1.4.1 in the License Exam. Question #1 of 48Question ID: 606828. a variable annuity does not guarantee payments for life. Which of the following are defined as securities? \hspace{5pt}\text{Expense}&&\text{Credit}&\text{Debit}\\ B)fixed in value until the holder retires. For example, if the income is monthly, the first payment comes one month after the immediate annuity is bought. B)each annuity unit's value varies with time, but the number of annuity units is fixed. A customer, who has contributed to an IRA and to an employer matching 401(k) plan continuously for many years, wants to purchase an annuity contract to add additional monthly income once retired. Variable annuity salespeople must register with all of the following EXCEPT: In general, annuities have the following features. The # of accumulation units is always fixed throughout the accumulation period, 2. Her agent recommended she choose a variable annuity as a safe haven for the funds. B. separate account may consist of mutual funds. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. Generally, a life only contract pays the most per month because payments cease at the annuitant's death. D)accumulation units. A)I and IV. Variable annuity salespeople must be registered with FINRA and the state insurance department. For this potential advantage, the investor, rather than the insurance company, assumes the investment risk. A)Fixed annuity contract with a discussion regarding purchasing power risk Some state statutes and court decisions also protect some or all of the payments from those annuities. 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. Universal variable life policies are ins. The annuity has grown to value of $60,000. A)IPO. B)Two-thirds of the withdrawal is taxable as ordinary income. The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. Types of Annuities Flashcards by Liliana Benavides | Brainscape She may choose to receive monthly payments for the rest of her life. The number of accumulation units is always fixed throughout the accumulation period. 8. When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. 4.5 Variable Products Flashcards | Chegg.com Deferred annuities, also referred to as investment annuities, are available in fixed or variable forms. Once the contract is annuitized, monthly payments to the customer are: Reference: 12.3.4 in the License Exam, Chapter 16: U.S. Government and State Rules a, Chapter 17: Other SEC and SRO Rules and Regul, Chapter 15: Ethics, Recommendations, and Taxa, Chapter 13: Direct Participation Programs, Fundamentals of Financial Management, Concise Edition, Joe B. Hoyle, Thomas F. Schaefer, Timothy S. Doupnik, Carl Warren, James M Reeve, Jonathan E. Duchac. 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. Registration with FINRA is de factor registration with the SEC; no registration is required by the state banking commission. In the first year, you decide to withdraw $50,000. 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. a variable annuity guarantees payments for life. This would not align with the couple's criteria for coverage as long as they both live. As with most retirement account options, withdrawals before the age of 59 will result in a 10% tax penalty. C)II and III. B)cost of living. A)2800. Cram has partnered with the National Tutoring Association. B)Value of each annuity unit each month. An investor who purchases a fixed annuity contract assumes purchasing-power risk. That can adversely affect your returns over the long term, compared with other types of investments. Reference: 12.2.1 in the License Exam. He originally invested $50,000 four years ago. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. Deferred annuities, also referred to as investment annuities, are available in fixed . Many variable annuities invest the separate account in mutual funds. 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. The annuity unit's value represents a guaranteed return. Fixed annuities. John is the annuitant in a variable plan, and Sue is the beneficiary. 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. Compound Accreted Value (CAV) of a municipal bond is used as the starting point in determining the value of a zero coupon bond. D)the state insurance department. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: 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. Reference: 12.3.3 in the License Exam. Universal variable life policies A separate account will invest in a number of different securities. How is the distribution taxed? Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. Reference: 12.2.1 in the License Exam, Question #48 of 48Question ID: 606835 A)number of annuity units. 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. The following annuities are available in fixed or variable form: 1. B)II and III. Your answer, The policyowner., was correct!. D) Mutual Fund portfolio consisting of blue chip stocks. Therefore, variable annuities must be registered with the state insurance commission and the Securities and Exchange Commission. C)municipal bonds. In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. An annuitant assumes the investment risk of a variable annuity and is not protected by the insurance company from capital losses. Contributions to a nonqualified variable annuity are not tax deductible. 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. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. Annuities are complicated products, so that may be easier said than done. B)I and IV. For this potential advantage, the investor, rather than the ins. withdraw funds without any tax consequences. 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. by jmacewe, C)III and IV The investor purchased accumulation units. 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. 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. U.S. Securities and Exchange Commission. When a VA contract is annuitized, the # of annuity units is fixed. The annuitized payments are viewed for tax purposes as All of the following are characteristics of variable whole life EXCEPT. "Variable Annuities: What You Should Know," Page 6. It is a variable annuity. 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. None of the other investments listed here offer tax-deferred growth. Question #16 of 48Question ID: 606807 D)I and IV. Advantages And Disadvantages Of Adjustable Life, Case Study: Cimb-Principal Asset Management Berhad. U.S. Securities and Exchange Commission. 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. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. B) unsuitable because the return on something as conservative as a variable annuity tends to be low. Cashing out life insurance policies or VAs where steep surrender charges are likely to exist, particularly in the earlier years of those contracts, is also considered abusive. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. C)Keogh plans. Variable annuities must be registered with: A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. D)the safety of the principal invested. B)I and III. Chapter 4: Annuities Flashcards | Chegg.com A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. Once a variable annuity has been annuitized: For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. approve changes in the plan portfolio.3. The accumulation period of a variable annuity may continue for many years. An annuity is an agreement for one person or organization to pay another a series of payments. the state banking commission. Equity-Indexed Annuity: How They Work. and Their Limitations - Investopedia A VA is a security & must be registered with the SEC, not FINRA. B)Tax-free municipal bonds A)value of underlying securities held in the separate account. The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. required to be located off of the company's premises. B)II and III. When a variable annuity contract is annuitized, the number of annuity units is fixed. Copyright 2023, Insurance Information Institute, Inc. a life insurance holder dies sooner than expected. But again, the need to designate beneficiaries is not an issue for this annuitant. However, it does guarantee payments for life (mortality). What is the taxable consequence of this withdrawal to your client? Variable annuities should be considered long-term investments due to the limitations on withdrawals. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. Question #18 of 48Question ID: 606827 To prevent this situation individuals can buy a guaranteed period with the immediate annuity. "Variable Annuities: What You Should Know," Pages 67. Only variable annuities have payout plans that provide the client income for life. A)It will stay the same. PDF Variable Annuities: What You Should Know - SEC C)II and IV. B)I and II 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. Question #22 of 48Question ID: 606803 D)Investment risk. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. C)number of accumulation units. Because this is not guaranteed, the policyowner bears the investment risk. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. C)Life annuity. 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. D)variable annuities. An investor who purchases a fixed annuity contract assumes purchasing-power risk. 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. The separate account performance compared to an assumed interest rate. 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"}}. Variable annuities must be registered with:

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