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SIE > Ch. 8 > Flashcards

Ch. 8 Flashcards

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SIE Exam flashcards
1
Q

In a qualified annuity, how is the payout taxed?

A

Entire payout is taxed as ordinary income

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2
Q

What is the expense risk charge on an annuity?

A

Expense charge pays the issuer if expenses for administering the annuity are more than estimated.

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3
Q

At annuitization (payout), what will determine the annuitant’s payment?

A

A fixed number of annuity units with a fluctuating value per unit

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4
Q

What technique can be used to roll assets from one annuity into another without taxation?

A

A 1035 exchange

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5
Q

All variable contract premiums are placed in the insurance company’s ____ account.

A

separate

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6
Q

What account is used for the placement of an insurance company’s variable contract assets?

A

A separate account

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7
Q

Identify: LGIP

A

Local Government Investment Pool

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8
Q

May a person contribute to her own 529 plan?

A

Yes

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9
Q

Which annuity provides a guaranteed return- fixed or variable?

A

Fixed

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10
Q

Which fee helps an insurance company continue to pay annuities when annuitants live longer than expected?

A

Mortality risk charges

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11
Q

The money invested in a variable annuity is used to buy _____.

A

Accumulation units (similar to mutual fund shares)

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12
Q

Describe the tax treatment of contributions to a 529 plan.

A

They are after-tax contributions that may grow tax-free

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13
Q

In a non-qualified annuity, how is the payout taxed?

A

Only the earnings portion is subject to tax as ordinary income.

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14
Q

Principals have ____ business days from receiving an application to approve an annuity sale for suitability standards.

A

7 days

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15
Q

What fee does a variable annuity company charge to cover its cost of operations.

A

Administrative fee

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16
Q

T/F: A $75k gift can be made to a 529A plan and be treated as if its being made over a 5-year period.

A

False, unlike a 529 plan, no 5 year front loading of contributions

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17
Q

____ plans are college savings plans with high contributino limits set by the state sponsor.

A

529

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18
Q

Which annuity allows for a pre-tax contribution- qualified or non-qualified

A

Qualified

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19
Q

In a non-qualified annuity, how is the payout taxed?

A

Ordinary income tax

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20
Q

In a 529 plan, what happens if the funds are withdrawn, but not used for qualified education expenses?

A

Taxed at ordinary income plus a 10% penalty

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21
Q

T/F: Insurance companies guarantee a minimum cash value on variable annuities?

A

False

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22
Q

What annuity does not protect an investor against inflation?

A

Fixed annuity

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23
Q

Who assumes the investment risk in a variable annuity contract?

A

Client or contract owner

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24
Q

If not needed for a child’s education, may the funds in a 529 plan be transferred to a relative’s 529 plan?

A

Yes

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25
Q

Is a fixed annuity a security?

A

No, but a variable annuity is

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26
Q

Who can contribute to a qualified annuity?

A

People who work for non-profits and public schools

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27
Q

What type of annuity guarantees that an amount equal to the value of the annuity is paid to a designated beneficiary?

A

Unit Refund Annuity

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28
Q

Variable contract assets are placed in the insurance company’s _____ account.

A

Separate account

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29
Q

What is the tax implication of the death benefit on a variable annuity?

A

Any amount above the contract’s basis is taxable to the beneficiary

30
Q

May clients invest in an out-of-state 529 plan?

A

Yes, can be in-state or out-of-state

31
Q

What payout option requires the insurance company to provide payments for as long as one of two people remain alive?

A

Joint and Last Survivor

32
Q

Does an equity-indexed annuity transaction require the delivery of a prospectus?

A

No, because they are not considered securities

33
Q

T/F: Annuity sales must be approved by a principal to determine whether they are suitable

A

True

34
Q

A client has annuitized her contract under the straight-life option and soon dies. What is her death benefit?

A

$0. There is no death benefit post-annuitization since the contract is based on her life only

35
Q

T/F: In a straight-life annuity payout option, no beneficiary will receive payments at the annuitant’s death

A

True, all payments cease upon death

36
Q

Which annuity is funded with after-tax dollars - qualified or non-qualified?

A

Non-qualified

37
Q

What type of insurance and annuity contracts require delivery of a prospectus?

A

Anything containing “variable” in the title

38
Q

What are some of the specific product disclosures that are required for variable contracts?

A

Client goals should be long-term, surrender charges apply due to early redemption

39
Q

Is switching between annuity sub-accounts taxable?

A

No

40
Q

Distributions from a qualified plan are taxed at _____ rates.

A

Ordinary income

41
Q

What is the maximum sales charge that may be levied on a variable annuity sale?

A

There is no statutory maximum. FINRA rules require the charge to be fair and reasonable

42
Q

______ is the payout option that provides payments for the annuitant’s whole life and will cease at death.

A

Straight-life

43
Q

Which is more expensive to own- a variable annuity or a mutual fund?

A

A variable annuity due to to death benefit and mortality expenses

44
Q

Is a person who invests in a variable annuity more susceptible to legislative or investment risk?

A

Investment risk due to fluctuating with overall market

45
Q

T/F: Annuity owners can redeem their accumulation units at any time.

A

True, but surrender charges and taxes may apply

46
Q

What percentage of the benefit received from a qualified annuity is subject to taxation?

A

100%, since the annuity is funded with pre-tax dollars

47
Q

What is the benefit of the straight-life payout option to the annuitant?

A

Provides highest monthly income

48
Q

T/F: If client suitability for a variable annuity is determined, an RR signs and documents the recommendation.

A

True

49
Q

Is there an income threshold for 529 contributors?

A

No

50
Q

Identify: EIA

A

Equity Indexed Annuity

51
Q

Is the death benefit of an annuity included in the estate of a deceased client?

A

Yes

52
Q

T/F: Variable annuities are not securities and are therefore not subject to registration

A

False, variable annuities are securities

53
Q

What is the purpose for creating (Local Government Investment Pools) LGIPs?

A

For municipal entities to invest excess cash

54
Q

T/F: Variable products are mutual funds.

A

False

55
Q

The money invested in a variable annuity is used to buy _____

A

accumulation units

56
Q

What type of annuity has a minimum rate of return and tracks an index?

A

Equity Indexed Annuity (EIA)

57
Q

May an Aunt set up a 529 plan for her niece?

A

Yes, donor does not have to be a parent

58
Q

What is an annuity’s death benefit?

A

The greater of 1) contributions into the annuity or 2) annuity’s value on the day of the annuitant’s death

59
Q

What are the general characteristics of a 529 account?

A

Tax advantaged college savings plan sponsored by a state or educational institution

60
Q

What is a 1035 Exchange?

A

A tax-free exchange of one annuity for another, which are allowed under Section 1035 of the Tax Code

61
Q

How often are assets valued in a variable contract?

A

Daily

62
Q

What is the purpose of a 529 ABLE (or 529A) plan?

A

Savings plans to assist individuals with disabilities to supplement social security benefits

63
Q

T/F: an investor may roll a non-qualified annuity into an IRA without being taxed.

A

False, withdrawing from a non-qualified annuity is taxable. A 1035 exchange does not apply to non-qualified plans

64
Q

T/F: Variable annuities are subject to registration requirements of the Act of 1933 and sold by prospectus.

A

True

65
Q

At annuitization (payout), accumulation units are exchanged for _____ units

A

annuity units

66
Q

In a _____ annuity, the owner invests on an after-tax basis with earnings accumulating on a tax-deferred basis

A

non-qualified

67
Q

What modification is made to the straight-life payout option to guarantee payments for a minimum number of years?

A

“Certain Period”

68
Q

An annuity client contributed $100,000 which has grown to $200,000. If the client dies, what is her death benefit?

A

$200,000 (Remember greater of contributions or value of annuity at death)

69
Q

An annuity client contributed $100,000 that is now worth $50,000. If the client dies, what is her death benefit?

A

$100,000 (Remember, greater of contribution or annuity value at death)

70
Q

A qualified annuity allows for ____ contributions and the annuity value grows on an ____ basis

A

Pre-tax contributions on a tax-deferred basis

71
Q

Which annuity payout option provides for the greatest monthly payment?

A

Straight-life

72
Q

Describe the tax treatment of contributions that are made to 529A plans.

A

Made on after-tax basis and grow tax free

SIE (20 decks)

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