CH 5 Annuities

Question 1

What is the difference between a single premium and a flexible premium payment option in a deferred annuity?

Answer 1

The number of payments that purchase the annuity.

Question 2

An annuity purchased with multiple payments that begin income payments after one year from the moment of purchase is known as what type of annuity?

Answer 2

Flexible premium deferred annuity.

Question 3

What is the main reason for purchasing an annuity?

Answer 3

To provide income that the annuitant cannot outlive.

Question 4

What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?

Answer 4

Straight life.

Question 5

What are the two types of refund life annuities?

Answer 5

Cash refund and installment refund.

Question 6

An individual has a contract that will provide him with a certain amount of income for the rest of his life. However, this is not a life insurance policy. What type of contract does this person have?

Answer 6

Annuity.

Question 7

In an annuity, the accumulated money is converted into a stream of income during which phase?

Answer 7

Annuitization period.

Question 8

With a single premium deferred annuity, when will the annuity payments become available?

Answer 8

No sooner than 1 year after the annuity purchase.

Question 9

How long will a life annuity with a 15-year period certain pay?

Answer 9

For the life of the annuitant unless he/she dies within the first 15 years of the annuitization period; then the payments will last for 15 years.

Question 10

What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?

Answer 10

Life income with period certain.

Question 11

Who receives income payments from an annuity?

Answer 11

Annuitant.

Question 12

What causes a variable annuity benefit to vary?

Answer 12

The annuity;s underlying investments.

Question 13

How are annuities classified depending on how many lives they cover?

Answer 13

Single life and multiple life annuities.

Question 14

In flexible premium payment annuities, the term “flexible” refers to what?

Answer 14

Amount of premium.

Question 15

Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?

Answer 15

The annuitant receives payments from the annuity during the annuitization period; the beneficiary receives benefits after the annuitant’s death.

Question 16

What type of annuity can be purchased with a single premium?

Answer 16

Immediate annuity.

Question 17

How soon can income payments begin in an immediate annuity?

Answer 17

No later than 1 year from the time of annuity purchased.

Question 18

What are the two phases of annuity?

Answer 18

Accumulation and annuitization

pay-in and pay-out

Question 19

What type of annuity credits its interest based upon an index such as S&P 500?

Answer 19

Equity indexed annuity

Question 20

How long is income paid under a pure life annuity?

Answer 20

Only for the life of the annuitant.

Question 21

If the annuitant dies during the accumulation, who will receive the annuity benefits?

Answer 21

Beneficiary.

Question 22

What is a disadvantage of owning a fixed annuity, as opposed to variable?

Answer 22

In times of inflation, the benefit of a fixed annuity will have decreased purchasing power.

Question 23

What type of license(s) is/are required in order to sell variable annuities?

Answer 23

Life insurance license and securities license.

Question 24

What are the two classifications of annuities according to the time when annuity payments begin?

Answer 24

Immediate and deferred.

Question 25

What are accumulation units in annuities?

Answer 25

Ownership interest in the separate account (instead of buying shares, annuity holder purchases accumulation units)

Question 26

if the annuitant dies before the annuitization period starts, what will the beneficiary receive?

Answer 26

Either the amount paid into the annuity or the cash value, whichever is greater.

Question 27

Who bears the investment risk in a fixed annuity?

Answer 27

The insurer.

Question 28

If the current interest rate on an annuity is higher than the guaranteed rate, which rate will the annuity owner receive as part of the annuity payment?

Answer 28

Current.

Question 29

What annuity settlement option provides income payments to the annuitant for the duration of his/her life, and ceases at the annuitant’s death?

Answer 29

Pure life.

Question 30

If an annuity provides a set amount of income for two or more persons with the income ceasing ipon the first death, what type of annuity is that?

Answer 30

Joint life annuity.

Question 31

Can a business or a corporation be an annuitant?

Answer 31

No, an annuitant must always be a natural person.

Question 32

Whose life expectancy is taken into consideration in an annuity contract?

Answer 32

Annuitant.

Question 33

If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?

Answer 33

Annuitants estate.

Question 34

Who possesses all the rights in an annuity?

Answer 34

Annuity owner.

Question 35

What type of annuity requires an agent to have a securities license?

Answer 35

Variable annuity.

Question 36

TERM: Deffered

Answer 36

Withheld or postponed until a specified time or event in the future.

Question 37

TERM: IRS

Answer 37

Internal Revenue Service: a U.S. Government agency responsible for collecting of taxes, and enforcement of the internal revenue code.

Question 38

TERM: Life Contingency

Answer 38

Dependent upon whether or not the insured is alive.

Question 39

TERM: Liquidation of an Estate

Answer 39

Converting a person’s net with into a cash flow.

Question 40

TERM: Natural Person

Answer 40

A human being

Question 41

TERM: Qualified Plan

Answer 41

A retirement plan that meets the IRS guidelines for receiving favorable tax treatment.

Question 42

TERM: Suitability

Answer 42

A requirement to determine if an insurance product or an investment is appropriate for a particular customer.