Chapter 14 Annuities

15 Questions

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Finance Quizzes & Trivia

Questions and Answers
  • 1. 
    What is the advantage of having a qualified annuity?  
    • A. 

      There is no advantage

    • B. 

      Higher dividends

    • C. 

      The employer receives a tax deduction for the contributions

    • D. 

      Receiving a lump-sum settlement tax free

  • 2. 
    Under a Straight Life Annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive:
    • A. 

      Guaranteed minimum benefit

    • B. 

      Nothing; the payments will cease

    • C. 

      The amount paid into the annuity

    • D. 

      The remainder of the principal

  • 3. 
    A prospective Deferred Annuity owner is concerned about what would happen if the surrendered the annuity before the annuitization period. The agent most likely explained which of the following?
    • A. 

      The owner will receive some of the money back, which will depend on the surrender value established by the insurer at the time that the contract is terminated

    • B. 

      It is not possible to surrender an annuity before the annuitization period.

    • C. 

      Non-Forfeiture Option guarantees that the owner will receive a surrender value of the contract

    • D. 

      The insurance company will apply the money to another annuity or a Life Insurance policy, but the money cannot be returned

  • 4. 
     The period of time during which payments earn interest and grow tax deferred is called:  
    • A. 

      Pay-out period

    • B. 

      Pay in-period

    • C. 

      Liquidation Period

    • D. 

      Annuitization period

  • 5. 
    An annuity is payable for as long as the annuitant lives, and upon death, all the payments cease.  This is which Payment Option?
    • A. 

      Life Income Joint and Survivor Option

    • B. 

      Life Income Option

    • C. 

      Joint Life Option

    • D. 

      Life Income with Refund Option

  • 6. 
    • A. 

      Annuities do not use the pooling technique to spread risk

    • B. 

      An owner may change the annuity date, the beneficiary, or the settlement option

    • C. 

      Once the payout period begins, the annuitant recieves periodic payments

    • D. 

      The accumulation period is the period prior to the annuitzation date

  • 7. 
    • A. 

      Annuities may use a beneficiary designationin case of the annuitant's death

    • B. 

      Premature distributions are subject to a 15% penalty tax in order to discourage the use of annuity contracts as a short-term tax shelter.

    • C. 

      Owners of individual annuities have contracted rights beginning at the time of purchase.

    • D. 

      Business Corporations may use annuities to provide pensions for employees, either nonqualified or qualified plans, or to structure payments of liability settlements.

  • 8. 
    Mr. Brown recieved monthly benefits from his annuity, and upon death, Mrs. Brown recieves a reduced amount.  What annuity payment option did Mr. Smith choose?
    • A. 

      Cash refund

    • B. 

      Life Income

    • C. 

      Joint and Survivorship

    • D. 

      Minimum Distribution

  • 9. 
    What is the greatest marketable benefit of a Flexible Premium Defererred Annuity?
    • A. 

      Tax Deferment

    • B. 

      Contributions may be as often and as large as the owner desires

    • C. 

      The owner may cancel at anytime

    • D. 

      Surrender charges could occur if cancelled in early years

  • 10. 
    The payment option that pays an income for the life of the annuitant or for a specified period, whichever occurs last, is
    • A. 

      Temporary Annuity

    • B. 

      Life income

    • C. 

      Life income with Period Certain

    • D. 

      Life income with refund

  • 11. 
    What is not a trait of a Fixed Annuity?
    • A. 

      The insurer's assets guarantee the fixed annuity contract

    • B. 

      The purchasing power of a fixed amount decreases as the cost of living increases

    • C. 

      It must include a projected schedule of cash availability on its anniversary date, for a minimium of 10 years

    • D. 

      The insurere bears any investment risk.

  • 12. 
    • A. 

      Upon annuitization, the accumaltion units are converted to annuity units. The income is paid based on the valueof the units.

    • B. 

      The contract owner bears the investment risk and recieves the return actually earned on invested assets, less any charges assesses by the insurer.

    • C. 

      Premiums paid during the accumlation period are invested in a seperate account(s).

    • D. 

      The number of annuity units recieved, and the unit value, remain level.

  • 13. 
    You purchase an annuity in December and begin recieiving monthly benefits in May.  What type of annuity do you own?
    • A. 

      Retirement Annuity

    • B. 

      Single Premium IRA

    • C. 

      Single Premium Immediate Annuity

    • D. 

      Tax Sheltered Annuity

  • 14. 
    An annuity purchased 10 years ago would have some value at this time.  The accumaltion units may now be converted to annuity units.  What type of annuity is this?
    • A. 

      Fixed

    • B. 

      Ten year Certain

    • C. 

      Variable

    • D. 

      Taxable Annuity

  • 15. 
    Which of the following best defines the Cost Recovery Rule?
    • A. 

      The cash value, plus the sum of the premiums paid, equals the equity in the contract.

    • B. 

      The face amount, less the cash value, equals the equity in the contract

    • C. 

      The face amount, plus the cash value, equals the equity in the contract.

    • D. 

      The cash value, minus the sum of the premiums paid, equals the equity in the contract.