The following table summarizes the rules of debit and credit. C)prime rate. For this potential advantage, the investor, rather than the ins. Is required by the Securities Act of 1933, 4. 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? 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. C)the yield is always higher than bond yields. There are many categories of annuities. Variable annuities must be registered with: A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. If the customer takes a withdrawal of $10,000, what are the tax consequences? withdraw funds without any tax consequences. C)with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually Question #26 of 48Question ID: 606811 C)Keogh plans. For example, an individual might buy a nonqualified single premium deferred variable annuity. Therefore, ordinary income taxes will apply to the entire $10,000. This factor is used to establish the dollar amount of the first annuity payment. Some fixed annuities credit a higher interest rate than the minimum, via a policy dividend that may be declared by the companys board of directors, if the companys actual investment, expense and mortality experience is more favorable than was expected. C)II and IV. B) the state insurance department. Question #38 of 48Question ID: 606798 A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. Pretend you are on the leadership team of a manufacturing company that is currently challenged by low-cost competition. Reference: 12.2.1 in the License Exam, Question #48 of 48Question ID: 606835 Reference: 12.1.2 in the License Exam, Question #23 of 48Question ID: 901858 Which of the following statements regarding variable annuities are TRUE? D)Any tax due is deferred. used for the investment of funds paid by contract holders. Variable annuities gave buyers a chance to benefit from rising markets by investing in a menu of mutual funds offered by the insurer. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. The annuity has grown to value of $60,000. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. 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. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. A)100% tax free. Question #45 of 48Question ID: 606795 An investor who purchases a fixed annuity contract assumes purchasing-power risk. Which of the following are defined as securities? 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. C)III and IV. C)Growth mutual funds C) The entire amount is taxed as ordinary income, because it is not life insurance. B)a majority vote from the shareholders is required to change the investment objectives. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? Sub accounts and mutual funds are conceptually. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. Lifetime annuities A lifetime annuity provides income for the remaining life of a person (called the annuitant). Variable Annuitization is an annuity option where income payments received by the policyholder vary based on the investment performance of the annuity. Question #35 of 48Question ID: 606810 C)It will be higher. The number of accumulation units can rise during the accumulation period. In general, annuities have the following features. An investor who has purchased a nonqualified variable annuity has the right to: The second phase is triggered when the annuity owner asks the insurer to start the flow of income, often referred to as the payout phase. Fixed annuities, on the other hand, provide a guaranteed return. B)Variable annuities. 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. Universal variable life policies are ins. Required fields are marked *. Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. Explaining What have been the major population changes since the first census in 1790? Single premium annuities are often funded by rollovers or from the sale of an appreciated asset. During the accumulation phase, the number of accumulation units will increase as additional money is invested. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. \text{Income statements accounts:}&&&\\ D)Variable annuity. VA contracts must be sold by prospectus due to the characterization of the separate accounts as securities, which must be registered under the Securities Act of 1933 & the Investment Co. Act of 1940. Future annuity payments will vary according to the separate account's performance. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. Which of the following are defined as securities? 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. D)I and IV. 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. 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. a variable annuity guarantees payments for life. Why Is It Important To Have Your Financial Plan And Goals In Place When Considering Investments? Based only on these facts, the VA recommendation is: A. not suitable because a lifetime income rider is only for someone who is already retired. U.S. Securities and Exchange Commission. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59 1/2. C)III and IV D. a majority vote from the shareholders is required to change the investment objectives. co. will have to continue payments longer than expected. Introducing Cram Folders! Changes in payments on a variable annuity correspond most closely to fluctuations in the: "Variable Annuities: What You Should Know," Pages 67. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. A customer has a nonqualified variable annuity. There is no clear answer to this. 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. Which of the following recommendations would best meet the customer profile? 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!. can be sold by someone with only an insurance license This compensation may impact how and where listings appear. When the first party dies, the annuity payment is made to the survivor. A)II and IV. A)IPO. All of the following are characteristics of a variable annuity, except: a. used to escrow late or otherwise delinquent premium payments. Question #11 of 48Question ID: 606816 However, it does guarantee payments for life (mortality). A VA is a security & must be registered with the SEC, not FINRA. 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. B)Value of each annuity unit each month. A joint-and-last-survivor annuity is a payout option where: Your answer, two people are covered and payments continue until the second death., was correct!. Qualified annuities A qualified annuity is one used to invest and disburse money in a tax-favored retirement plan, such as an IRA or Keogh plan or plans governed by Internal Revenue Code sections 401(k), 403(b) or 457. have investment risk that is assumed by the investor. Your client owns a variable annuity contract with an AIR of 4%. through (l), indicate whether the proper answer is a debit or a credit. Your answer, It will be higher., was correct!. You can buy an annuity with either a lump sum or a series of payments, and the accounts value will grow accordingly. Advantages And Disadvantages Of Adjustable Life, Case Study: Cimb-Principal Asset Management Berhad. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: All of the following statements concerning a variable annuity are correct EXCEPT: must provide full and fair disclosure. Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. C)Money market fund. The fund has a particular investment objective, and the value of the money in a variable annuityand the amount of money to be paid outis determined by the investment performance (net of expenses) of that fund. Please sign in to access member exclusive content. Immediate annuities An immediate annuity is designed to start paying an income one time period after the immediate annuity is bought. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. C)annuity units. If the owner of a variable annuity dies during the accumulation period, any death benefit will: Your answer, be paid to a designated beneficiary., was correct!. Variable annuities are regulated by state insurance departments and the federal Securities and Exchange Commission. 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. 3. In addition, an element of risk must be present. B)100% taxable. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. An investor who has purchased a nonqualified variable annuity has the right to: Which of the following statements regarding variable annuities are TRUE? She may choose to receive monthly payments for the rest of her life. The most suitable option and one considered effective for married couples is a single joint and last survivor contract. Your 65-year-old client owns a nonqualified variable annuity. That can adversely affect your returns over the long term, compared with other types of investments. The separate account performance compared to an assumed interest rate. B)suitable regardless of funding sources Reference: 12.2.1 in the License Exam. All of the following statements regarding variable annuities are true EXCEPT: In the first year, you decide to withdraw $50,000. All of the following characteristics are shared by both a mutual fund and a variable annuity's separate account EXCEPT: A)the client assumes the investment risk. The value of the separate account is now $30,000. Reference: 12.3.3 in the License Exam. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. is required by the Securities Act of 1933. vote for the investment adviser.4. The # of annuity units is fixed at the time of annuitization, 4. D)I and III. approve changes in the plan portfolio.3. A)Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. B. variable annuities offer the investor protection against capital loss. A prospectus for a variable annuity contract: 1. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. Variable annuities were introduced in the 1950s as an alternative to fixed annuities, which offer a guaranteedbut often lowpayout during the annuitization phase. If this client is in the payout phase, how would his April payment compare to his March payment? Often used for retirement planning purposes, it is meant to provide a regular (monthly, quarterly, annual) income stream, starting at some point in the future. the VA recommendation would not be suitable. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. If they buy a variable annuity, their money can be invested in stocks, bonds or mutual funds. Contributions to an IRA may be tax deductible, depending on the individual's earnings and participation in a company-sponsored qualified retirement plan. If he wants to purchase an annuity and start receiving payments now, what would you suggest? A)II and IV. 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. The number of annuity units rises once annuitization begins. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. He originally invested $50,000 four years ago. This factor is used to establish the dollar amount of the first annuity payment. Who assumes the investment risk in a variable annuity contract? Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. Her intent was to use the funds for the down payment on a house after graduation. One of the following would achieve that objective but a suitability discussion regarding it's risk should also occur. the producer is responsible for providing the applicant a summary of coverage that includes all of the following EXCEPT. C)Variable annuity contract with a discussion regarding interest rate risk 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. C)II and IV. When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). Question #36 of 48Question ID: 606805 the state insurance commission. Variable annuity contracts were devised to help investors keep pace with inflation. 1. must be filed with FINRA. All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: Your answer, variable annuities., was correct!. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. The contract has a schedule of surrender charges, beginning with a 7% charge in the first year, and declining by 1% each year. Here is how guaranteed lifetime annuities work. A life annuity is an insurance product that features a predetermined periodic payout amount until the death of the annuitant. 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. When a variable annuity contract is annuitized, the number of annuity units is fixed. B)part earnings and part cost basis What Are Ordinary Annuities, and How Do They Work (With Example)? \hspace{5pt}\text{Drawing}&&&\\ Your customer in his early 30s has received a modest inheritance from a relative. The remainder of the premium is invested in the separate account. For example, individuals can invest in a fixed annuity that credits a specified interest rate, similar to a bank Certificate of Deposit (CD). &\textbf{Increase}&\textbf{Decrease}&\textbf{Normal Balance}\\ Which is it? While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount.

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