Annuities

Question 1

Classifications of Annuities

Answer 1

Single premium vs. Fixed or flexible premium
Immediate vs. Deferred
Individual life vs. Joint and last survivor
Straight/pure life vs. Period certain or refund
Fixed dollar vs. Variable

Question 2

Types of Annuities

Answer 2

• Fixed
• Variable
• Market-Value Adjusted
o withdrawals, prior to end of contract period, may be adjusted based on current market rates
• Equity-Indexed
o fixed value (safety net)
o tied to an index for potential increased value
o participation rate (and other factors) determines actual growth
• Retirement Income
o becoming more common because of desired flexibility
o may allow withdrawals rather than requiring
annuitization

Question 3

Question 5 - Annuities and Annuity Payments
In which of the following annuities do payments
to the policyholder begin shortly after purchase?

Answer 3

a. variable, flexible installment, immediate
annuity
b. fixed installment, deferred annuity
c. single premium, immediate annuity
d. single premium, variable deferred with some
fixed subaccounts

Question 4

Annuity Income Taxation

Answer 4

Before August 14, 1982
• FIFO
Before January 1, 1987
• all payments use exclusion ratio
After December 31, 1986
• exclusion ratio applies until initial investment (annuitant’s basis) is returned
Exclusion Ratio
• divide total investment in the contract by the total dollar amount of all expected annuity payments
• multiply each payment by ratio to determine the portion that is considered a return of capital (nontaxable)

Question 5

Life Insurance Pricing Factors

Answer 5

All life insurance policy premiums are priced
based on three interrelated pricing factors:
1. Mortality
2. Interest Income
3. Expenses

Question 6

Question 6 - Beneficiary Designations
All of the following are true regarding life
insurance beneficiaries except that

Answer 6

a. primary beneficiaries are paid before
secondary beneficiaries.
b. there is no limit to the number of beneficiaries in any one class.
c. spouses are the most commonly named
primary beneficiaries.
d. most beneficiary designations are irrevocable.

Question 7

Question 7 - Second to Die Policy
Which of the following is not true regarding
second-to-die policies?

Answer 7

a. The policy pays when the last person dies.
b. Premiums are generally lower than the cost
for two separate policies.
c. They are generally not a very useful tool for
estate planning purposes.
d. They may be generally advantageous when
one of the two insureds is older and highly
rated.

Question 8

Question 8 - Insurable Business Risks
All of the following are risk exposures for
closely-held businesses except

Answer 8

a. loss of a key employee to a chief competitor.
b. the death of a partner.
c. high degree of business liquidity at owner’s
death.
d. death of a long time key employee.