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SIE > Ch. 8 > Flashcards

Ch. 8 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
Is a fixed annuity a security?
No, but a variable annuity is
26
Who can contribute to a qualified annuity?
People who work for non-profits and public schools
27
What type of annuity guarantees that an amount equal to the value of the annuity is paid to a designated beneficiary?
Unit Refund Annuity
28
Variable contract assets are placed in the insurance company's _____ account.
Separate account
29
What is the tax implication of the death benefit on a variable annuity?
Any amount above the contract's basis is taxable to the beneficiary
30
May clients invest in an out-of-state 529 plan?
Yes, can be in-state or out-of-state
31
What payout option requires the insurance company to provide payments for as long as one of two people remain alive?
Joint and Last Survivor
32
Does an equity-indexed annuity transaction require the delivery of a prospectus?
No, because they are not considered securities
33
T/F: Annuity sales must be approved by a principal to determine whether they are suitable
True
34
A client has annuitized her contract under the straight-life option and soon dies. What is her death benefit?
$0. There is no death benefit post-annuitization since the contract is based on her life only
35
T/F: In a straight-life annuity payout option, no beneficiary will receive payments at the annuitant's death
True, all payments cease upon death
36
Which annuity is funded with after-tax dollars - qualified or non-qualified?
Non-qualified
37
What type of insurance and annuity contracts require delivery of a prospectus?
Anything containing "variable" in the title
38
What are some of the specific product disclosures that are required for variable contracts?
Client goals should be long-term, surrender charges apply due to early redemption
39
Is switching between annuity sub-accounts taxable?
No
40
Distributions from a qualified plan are taxed at _____ rates.
Ordinary income
41
What is the maximum sales charge that may be levied on a variable annuity sale?
There is no statutory maximum. FINRA rules require the charge to be fair and reasonable
42
______ is the payout option that provides payments for the annuitant's whole life and will cease at death.
Straight-life
43
Which is more expensive to own- a variable annuity or a mutual fund?
A variable annuity due to to death benefit and mortality expenses
44
Is a person who invests in a variable annuity more susceptible to legislative or investment risk?
Investment risk due to fluctuating with overall market
45
T/F: Annuity owners can redeem their accumulation units at any time.
True, but surrender charges and taxes may apply
46
What percentage of the benefit received from a qualified annuity is subject to taxation?
100%, since the annuity is funded with pre-tax dollars
47
What is the benefit of the straight-life payout option to the annuitant?
Provides highest monthly income
48
T/F: If client suitability for a variable annuity is determined, an RR signs and documents the recommendation.
True
49
Is there an income threshold for 529 contributors?
No
50
Identify: EIA
Equity Indexed Annuity
51
Is the death benefit of an annuity included in the estate of a deceased client?
Yes
52
T/F: Variable annuities are not securities and are therefore not subject to registration
False, variable annuities are securities
53
What is the purpose for creating (Local Government Investment Pools) LGIPs?
For municipal entities to invest excess cash
54
T/F: Variable products are mutual funds.
False
55
The money invested in a variable annuity is used to buy _____
accumulation units
56
What type of annuity has a minimum rate of return and tracks an index?
Equity Indexed Annuity (EIA)
57
May an Aunt set up a 529 plan for her niece?
Yes, donor does not have to be a parent
58
What is an annuity's death benefit?
The greater of 1) contributions into the annuity or 2) annuity's value on the day of the annuitant's death
59
What are the general characteristics of a 529 account?
Tax advantaged college savings plan sponsored by a state or educational institution
60
What is a 1035 Exchange?
A tax-free exchange of one annuity for another, which are allowed under Section 1035 of the Tax Code
61
How often are assets valued in a variable contract?
Daily
62
What is the purpose of a 529 ABLE (or 529A) plan?
Savings plans to assist individuals with disabilities to supplement social security benefits
63
T/F: an investor may roll a non-qualified annuity into an IRA without being taxed.
False, withdrawing from a non-qualified annuity is taxable. A 1035 exchange does not apply to non-qualified plans
64
T/F: Variable annuities are subject to registration requirements of the Act of 1933 and sold by prospectus.
True
65
At annuitization (payout), accumulation units are exchanged for _____ units
annuity units
66
In a _____ annuity, the owner invests on an after-tax basis with earnings accumulating on a tax-deferred basis
non-qualified
67
What modification is made to the straight-life payout option to guarantee payments for a minimum number of years?
"Certain Period"
68
An annuity client contributed $100,000 which has grown to $200,000. If the client dies, what is her death benefit?
$200,000 (Remember greater of contributions or value of annuity at death)
69
An annuity client contributed $100,000 that is now worth $50,000. If the client dies, what is her death benefit?
$100,000 (Remember, greater of contribution or annuity value at death)
70
A qualified annuity allows for ____ contributions and the annuity value grows on an ____ basis
Pre-tax contributions on a tax-deferred basis
71
Which annuity payout option provides for the greatest monthly payment?
Straight-life
72
Describe the tax treatment of contributions that are made to 529A plans.
Made on after-tax basis and grow tax free

SIE (20 decks)

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