A Trivia Quiz On Annuities!

The correct answer is Single Premium Immediate Annuity. This type of annuity is purchased with a lump sum payment and the annuity payments start immediately or shortly after the purchase. In this scenario, the annuity is purchased in December and the monthly benefits start in May, which aligns with the characteristics of a Single Premium Immediate Annuity.

Life income with Period Certain is the payment option that pays an income for the life of the annuitant or for a specified period, whichever occurs last. This means that the annuitant will receive regular payments for the rest of their life, but if they were to pass away before the specified period ends, the payments will continue to a designated beneficiary until the end of that period. This option provides both the security of lifelong income and the assurance that payments will not be lost if the annuitant dies prematurely.

The correct answer is Life Income Option. This payment option guarantees that the annuity will be paid for as long as the annuitant lives, and upon their death, all payments will cease. This option provides a steady income stream for the annuitant throughout their lifetime.

Mr. Brown chose the Joint and Survivorship annuity payment option. This option allows him to receive monthly benefits from his annuity during his lifetime, and upon his death, his spouse, Mrs. Brown, will continue to receive a reduced amount of the benefits for the rest of her life. This option ensures that both Mr. and Mrs. Brown are provided for financially, even after one of them passes away.

Annuities actually do use the pooling technique to spread risk. This means that multiple individuals contribute to a pool of funds, which is then used to provide payments to annuitants. By spreading the risk across a larger pool of individuals, the potential impact of individual losses or longevity risk is reduced. This pooling technique helps to ensure that annuitants receive their periodic payments as agreed upon.

Annuities may use a beneficiary designation in case of the annuitant's death, owners of individual annuities have contracted rights beginning at the time of purchase, and business corporations may use annuities to provide pensions or structure payments of liability settlements. However, premature distributions being subject to a 15% penalty tax is not a characteristic of annuities. This penalty tax is imposed to discourage individuals from using annuity contracts as a short-term tax shelter.

A Flexible Premium Deferred Annuity offers the greatest marketable benefit of tax deferment. This means that the owner of the annuity can delay paying taxes on the earnings and growth of the annuity until they start making withdrawals. This can be advantageous as it allows the annuity to potentially grow larger over time since the owner is not paying taxes on the earnings each year. It also gives the owner more control over their tax liability, as they can choose when to start taking withdrawals and therefore when to start paying taxes on those withdrawals.

The correct answer is "Pay in-period" because it refers to the period of time when payments are made into an investment or retirement account and accumulate interest. During this period, the growth of the investment is tax-deferred, meaning that taxes on the earnings are not paid until the funds are withdrawn.

The number of annuity units received and the unit value do not remain level in a Variable Annuity. The value of annuity units can fluctuate based on the performance of the investments in the separate account(s). Therefore, the income paid out will also vary depending on the value of the units.

Having a qualified annuity provides the advantage of the employer receiving a tax deduction for the contributions made. This means that the employer can deduct the contributions made towards the annuity plan from their taxable income, reducing their overall tax liability. This can be a significant benefit for the employer as it helps to lower their tax burden and potentially increase their after-tax profits.

Under a Straight Life Annuity, the annuitant receives a fixed amount of income for their lifetime. If the annuitant dies before the principal amount is paid out, the payments will cease. This means that the beneficiary will not receive any further payments from the annuity.

The agent most likely explained that the Non-Forfeiture Option guarantees that the annuity owner will receive a surrender value of the contract if they choose to surrender it before the annuitization period. This means that the owner will receive some of the money back, which will depend on the surrender value established by the insurer at the time of termination.

An annuity purchased 10 years ago that can now be converted to annuity units is likely a variable annuity. Variable annuities allow the accumulation units to be invested in various investment options, such as stocks and bonds, which can result in fluctuating values over time. This type of annuity offers the potential for higher returns but also carries more risk compared to fixed annuities or other types of annuities.

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A fixed annuity does not necessarily have to include a projected schedule of cash availability on its anniversary date for a minimum of 10 years. While some fixed annuities may offer this feature, it is not a universal trait of all fixed annuities. The other options mentioned are traits of a fixed annuity - the insurer's assets guarantee the contract, the purchasing power decreases as the cost of living increases, and the insurer bears any investment risk.