Insurance Fundamentals: Annuities and Policyholder Rights Quiz

Annuities are financial products used as retirement investments and do not typically require proving insurability.

The money in the Cash Value account of an annuity grows tax-deferred, meaning you do not pay taxes on the growth until you withdraw the funds.

A Joint and Survivor Life Annuity is designed to provide income for the lifetimes of two individuals, typically a married couple. It ensures that payments continue as long as either spouse is alive. Single Life Annuity pays income for the life of only one individual. Fixed Period Annuity pays a specific amount for a predetermined period of time. Reverse Mortgage Annuity involves using home equity to receive payments.

Immediate annuities are typically purchased with a single premium payment.

When money is withdrawn from an annuity in a lump sum prior to age 59 1/2, the annuity owner would have to pay taxes on the withdrawal amount as well as a 10% penalty on the taxable portion of the withdrawal. The incorrect answers provided misrepresent the consequences of early withdrawal from an annuity.

A Life Annuity with a Period Certain provides payments for the annuitant's lifetime with a guaranteed minimum number of payments made to beneficiaries if the annuitant dies during the guaranteed period.

The Pay-In Phase of an annuity is commonly referred to as the Accumulation Phase, where the individual makes contributions or payments into the annuity before the payout phase begins.

The correct age to withdraw cash from a qualified retirement plan without facing tax and penalty is 59 1/2. This is considered the age of retirement by the IRS for these purposes.

During the Accumulation (Pay In) Phase of an annuity, the annuity owner can make changes such as adjusting contributions or investment choices. This phase is typically characterized by the period in which the annuity is being funded by the owner.

A Single Premium, deferred annuity is a type of annuity where a lump sum of money is paid upfront and then annuitized at a later date. Variable annuities involve investing in subaccounts, immediate annuities start making payments immediately, and fixed annuities guarantee a fixed rate of return over time.

A Straight Life Annuity guarantees payments for the annuitant's lifetime only, whereas the other options have different payout structures or conditions.

A Straight Life Annuity provides a guarantee of payments for life to the annuitant, whereas Fixed Period Annuity offers payments for a specified period, Joint and Survivor Annuity involves payments as long as one of the annuitants is alive, and Deferred Annuity delays payments until a future date.

During the Accumulation Phase of an annuity, if the annuity owner dies, the money is typically paid to a designated beneficiary, ensuring that the funds are passed on to the intended recipient.

When money is withdrawn from an annuity, the interest earned is typically subject to taxation. It is important to understand the tax implications before making any withdrawals from an annuity.

A Variable Annuity allows for the investment in a Separate Account, where the value of the annuity can vary based on the performance of the underlying investments. This type of annuity offers a guaranteed payout of units but also provides the potential for the value to increase or decrease based on market performance. Fixed, Indexed, and Immediate Annuities have different payout structures and investment options compared to Variable Annuities.

Annuitizing is the process of converting the accumulated value of a contract into a stream of income payments, typically in retirement. Vesting refers to the ownership of contributions made to a retirement account. Liquidating involves selling off assets to convert them into cash. Withdrawing is the act of taking funds out of an account or investment.

An Annuity Certain is a specific type of annuity that guarantees fixed payments over a predetermined period. In contrast, Variable Annuity, Immediate Annuity, and Lifetime Annuity represent different variations of annuity products with distinct payout structures and features.

During the pay-in period of an annuity, the annuity owner typically retains control over the contributions and investment decisions within the annuity contract.

Refund Life Annuity guarantees that all principal dollars will be paid back to the annuitant or their beneficiaries. This type of annuity ensures that no principal is lost, making it a popular choice for individuals looking for a secure investment option.

The Pay-Out Phase of an annuity is commonly referred to as the Income Phase, where the annuitant begins receiving regular payments from the annuity investment.

A Straight Life Annuity typically provides a higher monthly benefit compared to a Life Annuity with a Period Certain because it continues to pay out for the lifetime of the annuitant with no guaranteed period.

The concept of Exclusion Ratio in annuities refers to the portion of each annuity payment that is considered a return of the original investment and therefore not subject to tax. This helps determine how much of the annuity payout is taxable.