4/1 Flashcards
Ch 14
A(n) ___ is a periodic payment that continues for a fixed period or for the duration of the designated life/lives.
Annuity
The person who receives annuity payments is the ____.
Annuitant
A(n) ___ annuity pays periodic income payments that are guaranteed and fixed in amount. The first payment starts one payment interval from the date of purchase.
Fixed Immediate
During the ___ prior to retirement, fixed immediate annuity premiums are credited with interest.
Accumulation period
The ___ is the minimum interest rate that will be credited to a fixed immediate annuity.
Guaranteed Rate
For a fixed immediate annuity, the ___ is based on the current market conditions, and is guaranteed only for a limited period.
Current Rate
A(n) ___ annuity pays a higher interest rate initially.
Bonus
The ___ period is the period in which funds are paid out, or annuitized.
Liquidation
Under a(n) ___ annuity, the income payments terminate when the death of the first covered person occurs.
Joint
A(n) ___ annuity pays a lifetime income, but the income payments vary depending on commmon stock prices.
Variable
Which annuity matches the following description?
- First payment starts 1 payment interval from date of purchase
- During the Accumulation Period prior to retirement, premiums are credited with interest
- The Guaranteed Rate is the minimum interest rate that will be credited to the annuity
- The Current Rate is based on current market conditions, and is guaranteed only for a limited period
- Income payments are guaranteed and fixed
Fixed Immediate Annuity
Which annuity matches the following description?
- Premiums are used to purchase Accumulation Units during period prior to retirement
- At retirement, accumulation units converted into Annuity Units
- Both accumulation and annuity units vary with stock market
- Purpose is to provide inflation hedge by maintaining real purchasing power of payments
Variable Annuity
A(n) ___ annuity is a fixed, deferred annuity that allows the owner to participate in the growth of the stock market and provides downside protection against the loss of principal and prior interest earnings if the annuity is held to term.
Equity-Indexed
In an equity-indexed annuity, the ___ is the percent of increase in the stock index that is credited to the contract.
Participation Rate
___ annuities provide protection against the risk of depleting your financial assets at an advanced age.
Longevity
What is the major disadvantage of a longevity annuity?
Your heirs lose money if you die during the deferral period
An individual annuity purchased from a commercial insurer is a(n) ___.
Nonqualified annuity
In a(n) ___, the net cost of the annuity payments is recovered income-tax free, but the amount that exceeds that net cost is taxable as ordinary income.
Nonqualified Annuity
The ___ is the percent of the payment that is tax free.
Exclusion ratio
How is exlusion ratio calculated?
(Investment in contract) / (Expected return)
A(n) ___ allows workers with taxable compensation to make annual contributions to a retirement plan up to certain limits and receive favorable income tax treatment.
Individual Retirement Account (IRA)
Taxpayers with income that exceed phase-out limits can still contribute to a(n) ___ IRA.
Nondeductible
An IRA ___ is a tax-free distribution of cash or other property from one retirement plan, which is deposited into another retirement plan.
Rollover
What is the fundamental purpose of an annuity?
To provide a lifetime income that cannot be outlived
Annuity payments consist of 3 sources:
- Premium payments
- Interest earnings
- Unliquidated principal of annuitants who die early
A(n) ___ annuity pays periodic income payments at some future date.
Deferred
A(n) ___ annuity is purchased with a lump sum but income is deferred until some future date.
Single-Premium Deferred
A(n) ___ annuity allows the owner to vary the premium payments.
Flexible-Premium
A(n) ___ annuity contains no cash values or death benefits, and begins paying benefits only at an advanced age, such as 85.
Longevity
A(n) ___ annuity pays benefits until the last annuitant dies.
Joint-and-Survivor
A(n) ___ payout option pays a life income to the annuitant. After the annuitant’s death, payments continue to a beneficiary until they equal the purchase price.
Installment Refund
A(n) ___ annuity payout option is similar to the installment refund option, but pays the beneficiary a lump sum.
Cash Refund
A(n) ___ annuity payout option provides periodic payments that are adjusted for inflation.
Inflation-Indexed
Name the 3 main advantages to longevity annuities.
- Benefits kick in when other financial assets are likely to be exhausted
- They are generally less expensive than traditional immediate annuities
- They can be purchased with an inflation hedge
Which IRA matches the following description?
- Participant must have earned income during the year
- Participant must be under age 70.5
- Distributions before age 59.5 are subject to a 10% tax penalty unless certain conditions apply
- Allows workers to take a tax deduction for part or all of their contributions
Traditional IRA
Which IRA matches the following description?
- Annual contributions are not tax deductible
- Investment income accumulates income-tax free
- Qualified distributions are not taxable under certain conditions
- Contributions can be made after age 70.5
Roth IRA
Annuity contracts are often divided into 2 parts. During the ___, the policyholder pays premiums. During the ___, the insurer makes payments.
Accumulation period; Payout period
If the annuitant of a variable annuity dies before retirement, the amount paid to the beneficiary will be the higher of which two amounts?
The amount invested in the contract or the value of the account at the time of death
What are the 2 main differences between an annuity and life insurance?
- Life insurance provides protection against dying too soon whereas annuities provide protection against living too long
- Life insurance creates an immediate estate whereas an annuity creates a fund
Identify the eligibility requirements for a traditional IRA.
(2 points)
- The participant must have taxable compensation during the year, which can include wages and salaries, bonuses, commissions, and self-employment income
- The participant must be under age 70.5
Which type of annuity matches the following description?
- Interest credited is based on a stock market index, typically S&P 500
- The annuity is credited with part of the gain in the index, which does not include reinvestment of dividends
- Participation rates generally range from 30% to 100% of the gain in the stock index
Equity-Index Annuity
