In March, the actual net return to the separate account was 8%. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. Reference: 12.3.3 in the License Exam. C)Growth mutual funds Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps, Joint and Survivor Annuity: Key Takeaways. A)exempt from taxes 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. Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. Once a variable annuity has been annuitized: The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. &\textbf{Increase}&\textbf{Decrease}&\textbf{Normal Balance}\\ However, if you take a withdrawal during the contractssurrender period, which can be as long as 15 years, youll generally have to pay a surrender fee. All of the following statements concerning a variable annuity are correct EXCEPT: A prospectus for a variable annuity contract: A)value of underlying securities held in the separate account. Reference: 12.1.2.1.2 in the License Exam. 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. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. They are also riddled with fees, which can cut into profits. A VA is a security & must be registered with the SEC, not FINRA. C) a VA contract does not guarantee any type of return. Reference: 12.3.2.1 in the License Exam. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. Reference: 12.2.1 in the License Exam. You have created 2 folders. 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. A)Corporate debt securities The remainder of the premium is invested in the separate account. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. A security is an investment for profit with management performed by a third party. Each of the remaining statements are true. can be sold by someone with only an insurance license Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. For example, if the income is monthly, the first payment comes one month after the immediate annuity is bought. VAs, blue chip mutual fund portfolios, ETFS & ETNs are all tied to market performance in some way and have risk characteristics that would not align in terms of suitability for this client. A customer is receiving annuitized payments from a variable annuity. Meanwhile, options like an annuity can provide a guaranteed income during, With a deferred annuity, you make a one-time payment to the insurance. co., assumes the investment risk. All of the following statements about variable annuities are true EXCEPT: A) a minimum rate of return is guaranteed. The most popular type of variable annuity is a deferred annuity. However, they are protected by state guaranty associations in the event that the insurance company providing the product goes out of business. There is a common apprehension that if an individual starts an immediate lifetime annuity and dies soon after that, the insurance company keeps all of the investment in the annuity. The accumulation period of a variable annuity may continue for many years. For a retired person, which of the following investments would provide the greatest protection against inflation? Reference: 12.2.1 in the License Exam. contract. \hspace{5pt}\text{Revenue}&\text{Credit}&(j)&\\ In other words, the money in a fixed annuity will grow and will not drop in value. B)I and IV. approve changes in the plan portfolio. The number of annuity units rises once annuitization begins. In March, the actual net return to the separate account was 8%. Life Insurance vs. Annuity: What's the Difference? In general, annuities have the following features. C)II and IV. Question #18 of 48Question ID: 606827 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. The contract has a schedule of surrender charges, beginning with a 7% charge in the first year, and declining by 1% each year. 1. have investment risk that is assumed by the investor, 3. can be sold by someone with only an insurance license, 4. are purchased primarily for their insurance features. In addition, you can withdraw 10% of your contract value each year free of surrender charges. Distribution can take place before or during any solicitation for sale. Question #33 of 48Question ID: 606832 But again, the need to designate beneficiaries is not an issue for this annuitant. The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic pay-ments to you, beginning either immediately or at some future date. Introducing Cram Folders! Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies. Required fields are marked *. Your answer, waiver of premium, was correct!. 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. B. separate account may consist of mutual funds. Your answer, Variable annuity., was correct!. A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. She will receive the annuity's entire value in a lump-sum payment. 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. Please upgrade to Cram Premium to create hundreds of folders! The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. Question #13 of 48Question ID: 606822 The following are all characteristics of variable annuities EXCEPT: [A]The investment portfolio contains insurance protections against losses. All of the following statements regarding variable annuities are true EXCEPT: A. variable annuities may only be sold by registered representatives. An investor who has purchased a nonqualified variable annuity has the right to: A)IPO. Your answer, Purchasing power risk., was correct!. For anyone who may need access to the sum invested at a later time, a VA would not be considered a suitable recommendation. Some state statutes and court decisions also protect some or all of the payments from those annuities. must provide full and fair disclosure. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. Brainstorm a list of criteria by which you would select and prioritize projects. Reference: 12.1.2 in the License Exam. 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? A separate account will invest in a number of different securities. You can learn more about the standards we follow in producing accurate, unbiased content in our. Reference: 12.1.4.1 in the License Exam. For this potential advantage, the investor, rather than the ins. Azanswer team is here with the correct answer to your question. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. 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 #27 of 48Question ID: 606818 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. Fixed annuities, on the other hand, provide a guaranteed return. 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. What is her total tax liability? Please sign in to share these flashcards. When the first party dies, the annuity payment is made to the survivor. The entire amount is taxed as ordinary income. Sub accounts and mutual funds are conceptually. D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. 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. Can I Borrow from My Annuity for a House Down Payment? The most important consideration in purchasing a VA is to be aware that benefit payments will fluctuate with the investment performance of the separate account. A deferred annuity is an insurance contract that promises to pay the buyer a regular stream of income, or a lump sum, at some date in the future. Based on the client's profile, which of the following would be the best recommendation? \text{Income statements accounts:}&&&\\ A variable annuity is both an insurance and a securities product. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. Reference: 12.1.2.1.1. in the License Exam. Which of the following recommendations would best meet the customer profile? This factor is used to establish the dollar amount of the first annuity payment. are purchased primarily for their insurance features D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. The number of annuity units rises once annuitization begins. A)II and III 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. For each of the items (a) Pretend you are on the leadership team of a manufacturing company that is currently challenged by low-cost competition. If you die before the payout phase, your beneficiaries may receive a. 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. Reference: 12.3.3 in the License Exam. co. actuaries. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. The investor purchased accumulation units. A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. Which of the following recommendations would BEST meet the customer profile? If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. It may decrease in value. A life annuity is an insurance product that features a predetermined periodic payout amount until the death of the annuitant. 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. B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero Are Variable Annuities Subject to Required Minimum Distributions? Which of the following are defined as securities? A)an accounting measure used to determine the contract owner's interest in the separate account. The fees on variable annuities can be quite hefty. the SEC. The growth portion is subject to a 10% penalty. All of the following statements about variable annuities are true EXCEPT: Reference: 12.2.1 in the License Exam. B) the state insurance department. regulated under both securities and insurance laws. A customer has a nonqualified variable annuity. The annuity unit's value represents a guaranteed return. Variable annuities should be considered long-term investments due to the limitations on withdrawals. An accumulation unit in a variable annuity contract is: A variable annuity's separate account is: The separate account is used for both variable life insurance and variable annuity investments.