This recommendation is: You can learn more about the standards we follow in producing accurate, unbiased content in our. Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. As part of his profile, he stresses that he has had uncomfortable experiences in the past with the stock market and is not inclined to invest in anything that is based on stock market performance and would opt for principal protection instead. The amount that is paid doesnt depend on the age (or continued life) of the person who buys the annuity; the payments depend instead on the amount paid into the annuity, the length of the payout period, and (if its a fixed annuity) an interest rate that the insurance company believes it can support for the length of the payout period. Question #28 of 48Question ID: 606821 Question #32 of 48Question ID: 606815 Reference: 12.1.2 in the License Exam, Question #39 of 48Question ID: 721469 The growth of the annuitys value and/or the benefits paid may be fixed at a dollar amount or by an interest rate, or may grow by a specified formula. D) The fact that periodic payments into the contract may increase or decrease. We also reference original research from other reputable publishers where appropriate. Variable Annuitization is an annuity option where income payments received by the policyholder vary based on the investment performance of the annuity. The payment might be invested for growth for a long period of timea single premium deferred annuityor invested for a short time, after which the payout beginsa single premium immediate annuity. D)value of accumulation units. 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. Nonqualified annuities A nonqualified annuity is one purchased separately from, or outside of, a taxfavored retirement plan. The # of annuity units is fixed at the time of annuitization, 4. C)the payout plans provide the client income for life. Investment earnings of all annuities, qualified and nonqualified, are tax-deferred until they are withdrawn; at that point they are treated as taxable income (regardless of whether they came from selling capital at a gain or from dividends). C)II and III. For an investor, which of the following is the MOST important factor in determining the suitability of a VA investment? Based on the client's profile, which of the following would be the best recommendation? D)the state insurance department. Variable annuities must be registered with: A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. The earnings on dollars invested into a variable annuity accumulate tax deferred, which is why variable annuities are popular products for retirement accumulation. holder lives longer than expected, 4. a life ins. B)II and III. A)an accounting measure used to determine the contract owner's interest in the separate account. 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. In other words, the money in a fixed annuity will grow and will not drop in value. must provide full and fair disclosure. D)I and II. A)variable annuities will protect an investor against capital loss. A registered person recommends the purchase of a variable annuity to one of his clients. can be sold by someone with only an insurance license Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. A separate account will invest in a number of different securities. 5. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. For a retired person, which of the following investments would provide the greatest protection against inflation? With regard to a variable annuity, all of the following may vary EXCEPT: Your answer, number of annuity units., was correct!. How is the distribution taxed? A)the state banking commission. A variation of lifetime annuities continues income until the second one of two annuitants dies. GuranteedExamLife Flashcards by Gabriel Martinez | Brainscape B)100% taxable. A registered representative recommends a variable annuity with an income rider to a client. A)IPO. In addition, an element of risk must be present. U.S. Securities and Exchange Commission. have investment risk that is assumed by the investor. D)I and IV. Annuities are complicated products, so that may be easier said than done. D. insurance companies keep variable annuity funds in separate accounts from other insurance products. Reference: 12.1.4.1 in the License Exam. 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. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. Why Is It Important To Have Your Financial Plan And Goals In Place When Considering Investments? A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. a variable annuity does not guarantee payments for life. If the annuitant should die during that time, any death benefit would be paid to a beneficiary designated by the annuitant at the time the annuity was purchased. An equity indexed annuity is a type of fixed annuity, but looks like a hybrid. The payout compared to the initial payout upon annuitization. Which of the following are defined as securities? If this client is in the payout phase, how would his April payment compare to his March payment? The remainder of the premium is invested in the separate account. \hspace{5pt}\text{Liability}&\text{Credit}&&\\ Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. Question #41 of 48Question ID: 606801 Variable annuities must be registered with: There are two elements that contribute to the value of a variable annuity: the principal, which is the amount of money you pay into the annuity, and the returns that your annuitys underlying investments deliver on that principal over the course of time. For an insurance company, mortality risk turns out unfavorably if: A variable annuity's separate account is: If your 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized, what are the consequences of this action? A life annuity is an insurance product that features a predetermined periodic payout amount until the death of the annuitant. 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. A VA does not guarantee an earnings rate because earnings will depend on the performance of the separate account. This withdrawal flexibility is achieved by adjusting the annuitys value, up or down, to reflect the change in the general level of interest rates from the start of the selected time period to the time of withdrawal. For a retired person, which of the following investments would provide the greatest protection against inflation? A)II and IV. Variable annuities gave buyers a chance to benefit from rising markets by investing in a menu of mutual funds offered by the insurer. Please sign in to access member exclusive content. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: Your client owns a variable annuity contract with an AIR of 4%. 1. The growth portion is taxed as a capital gain. All Rights Reserved. Your customer, still working, informs you that she will be funding a variable annuity you have recommended from 2 sources: a refinancing of her primary home where she will be able to draw out equity that has built up since it was purchased 15 years ago, and cashing out another variable annuity that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. The nature of the securities invested in-bonds and growth stocks-makes it necessary that sales representatives and their principals be licensed in securities as well as insurance. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. A)defined contribution plans. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. This can be particularly valuable if they are using a strategy called rebalancing, which is recommended by many financial advisors. D)0. She may choose to receive monthly payments for the rest of her life. Reference: 12.2.1 in the License Exam. A)the number of annuity units becomes fixed when the contract is annuitized. He originally invested $29,000 4 years ago; it now has a value of $39,000. We weren't able to detect the audio language on your flashcards. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. The value of an annuity unit varies from month to month according to the performance of the separate account in comparison to the assumed interest rate. Meanwhile, options like an annuity can provide a guaranteed income during, With a deferred annuity, you make a one-time payment to the insurance. If you die before the payout phase, your beneficiaries may receive a. No other type of financial product can promise to do this. When a VA contract is annuitized, the # of annuity units is fixed. The value of accumulation and annuity units varies with the investment performance of the separate account. B)Universal variable life policy. Flexible premium annuities are only deferred annuities; that is, they are designed to have a significant period of payments into the annuity plus investment growth before any money is withdrawn from them. A security is an investment for profit with management performed by a third party. A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. C) The entire amount is taxed as ordinary income, because it is not life insurance. However, it does guarantee payments for life (mortality). Variable Annuities Flashcards - Cram.com Immediate life annuity with 10-year period certain. Reference: 12.3.2.1 in the License Exam. they have all the same characteristics as life insurance An Immediate Annuity is designed to provide each of the following features, EXCEPT: The creation of an estate Your client has a large sum of money to invest from the proceeds of the sale of his home. C)II and IV. the state insurance commission. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. Which of the following recommendations would best meet the customer profile? Her intent was to use the funds for the down payment on a house after graduation. B)Life annuity with period certain. Reference: 12.3.4 in the License Exam. From an insurance company, mortality risk turns out unfavorably if: 1. an annuitant lives longer than expected, 2. an annuitant dies sooner than expected, 3. a life ins. Your answer, The policyowner., was correct!. Please sign in to share these flashcards. Your answer, The entire $10,000 is taxable as ordinary income., was correct!. D)Variable annuity contract with a discussion regarding legislative risk, A VA with its investments in the separate account subject to market risk would not align with the customer's objective. The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. All of the following are characteristics of variable whole life EXCEPT. Are Variable Annuities Subject to Required Minimum Distributions? B)I and III. 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!. He must ensure that the client, in addition to meeting suitability requirements, is aware of all of the following EXCEPT: A) a VA contract will provide a fluctuating monthly check upon the annuitization of the contract. The following are all characteristics of variable annuities EXCEPT: [A]The investment portfolio contains insurance protections against losses. a variable annuity does not guarantee an earnings rate of return. How Are Nonqualified Variable Annuities Taxed? These contracts come with high surrender charges. Registration with FINRA is de factor registration with the SEC; no registration is required by the state banking commission. Changes in payments on a variable annuity correspond most closely to fluctuations in the: Once a customer annuitizes a variable annuity, which of the following statements are TRUE? In recent years, annuity companies have created various types of floors that limit the extent of investment decline from an increasing reference point. Introducing Cram Folders! C)I and IV. Contributions to an IRA may be tax deductible, depending on the individual's earnings and participation in a company-sponsored qualified retirement plan. Explaining What have been the major population changes since the first census in 1790? He originally invested $50,000 four years ago. Question #27 of 48Question ID: 606818 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. Question #26 of 48Question ID: 606811 do not have a separate account must precede every sales presentation. Variable annuities are designed to combat inflation risk. B)FINRA. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. 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. A)2800. A)Corporate debt securities Each of the remaining statements are true. C)III and IV Reference: 12.1.4.1 in the License Exam. & securities licenses. That can adversely affect your returns over the long term, compared with other types of investments. This customer has no spouse or dependents, which negates the value of the death benefit. Nature of the underlying investment fixed or variable, Primary purpose accumulation or pay-out (deferred or immediate), Nature of payout commitment fixed period, fixed amount or lifetime, Premium payment arrangement single premium or flexible premium. C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. Individuals are reducing their overall risk, because only part of the money is being put in each investment. D)suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract, Based on the information given in the question, the VA recommendation would not be suitable. An investor owning which of the following variable annuity contracts would hold accumulation units? 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 We'll bring you back here when you are done. 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. If a customer is about to buy a variable annuity contract and wants to select an annuity with a payout option providing the largest possible monthly payment, which of the following payout options would be MOST suitable? D)Dow Jones Industrial Average. Variable annuity salespeople must register with all of the following EXCEPT: Your answer, the state banking commission., was correct!. contract. Variable annuities are designed to combat inflation risk. B)I and II The number of annuity units is fixed at the time of annuitization. Surrender fees and penalties for early withdrawal. Question #22 of 48Question ID: 606803 For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? Generally the most that creditors can access is the payments as they are made, since the money the annuity owner gave the insurance company now belongs to the company. The # of annuity units rises once annuitization begins. This factor is used to establish the dollar amount of the first annuity payment. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. Variable annuities must be registered with: A prospectus for a variable annuity contract: When may a variable annuity account be surrendered? You dont have to worry about it anymore. Designed to protect against inflation. 2003-2023 Chegg Inc. All rights reserved. The growth of the annuitys value and/or the benefits paid does not depend directly or entirely on the performance of the investments the insurance company makes to support the annuity. There are many categories of annuities. 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. Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies. Variable annuity salespeople must register with all of the following EXCEPT: Variable annuity salespeople must be registered with FINRA and the state insurance department. B)fixed in value until the holder retires. Once the contract is annuitized, monthly payments to the customer are: How a Fixed Annuity Works After Retirement. Who assumes the investment risk in a variable annuity contract? 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? B) unsuitable because the return on something as conservative as a variable annuity tends to be low. Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps, Joint and Survivor Annuity: Key Takeaways. B)corporate stock. Question #1 of 48Question ID: 606828. A separate account will invest in a number of different securities. Chapter 12: Variable Annuities Flashcards | Quizlet A)a lifetime withdrawal benefit (LWB) or lifetime income benefit is generally in the form of a rider attached to the contract which will come at a cost to the annuitant If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? "Variable Annuities: What You Should Know," Pages 67. Types of Annuities Flashcards by Liliana Benavides | Brainscape If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? Distribution of dividends occurs during the accumulation period. B)changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. Which of the following are defined as securities? 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. Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? B)IRAs. A)Joint tenants annuity.
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