Unit 12- Variable Annuities

Question 1

Is a fixed annuity a security?

Answer 1

No

Question 2

Is a variable annuity a security?

Answer 2

Yes

Question 3

Are payments to annuities made with pre-tax or after-tax dollars?

Answer 3

after-tax dollars

Question 4

Must fixed or variable annuities be held in a separate account?

Answer 4

Variable

Question 5

FIXED/VARIABLE Annuities have a GUARANTEED/NOT GUARANTEED RATE of RETURN?

Answer 5

FIXED-GUARANTEED

VARIABLE-NOT GUARANTEED (dependent on performance of separate account)

Question 6

How long is income guaranteed for?

Answer 6

for life

Question 7

Combination Annuity

Answer 7

Fixed and Variable annuities

Question 8

If investment manager directly manages the separate account, how must the account be registered?

Answer 8

As an open-ended management investment company

Question 9

If investment manager passes the portfolio management on to another party, how must the account be registered?

Answer 9

Unit Investment Trust

Question 10

What is the maximum sales load for a variable annuity?

Answer 10

no max

Question 11

How often is pricing of unit value calculated?

Answer 11

one per day

Question 12

When does tax liability of dividends and capital gains occur?

Answer 12

Upon withdrawal

Question 13

Is there a penalty for withdrawals made before 59 1/2?

Answer 13

Yes- 10% and ordinary income tax on earnings portion of withdrawal (excess of contribution)

Question 14

Accumulation Phase of the annuity is also called?

Answer 14

The growth phase

Question 15

The Annuity Phase is also called the?

Answer 15

Payout Phase

Question 16

Annuitization is when:

Answer 16

The annuitant begins to take income from the account

Question 17

Assumed Interest Rate (AIR)

Answer 17

the actuarial determines a conservation projection of the performance of the separate account over the estimated life of the contract

Question 18

How are total number of annuity units calculated?

Answer 18

by the accumulation units’ value

Question 19

Life Income Payout Option

Answer 19

At annuitant’s death, the insurance company ceases making payments

Question 20

Life w/ Period Certain payout option

Answer 20

There is a certain period in which payouts are certain even if the annuitant dies.
If lives to 100 yrs old, annuitant still gets payments continuously.
If take a 10 year certain period, and dies two years later. His/her beneficiary recieves payments for 8 more years

Question 21

Joint Life with Last Survivor payout option

Answer 21

payments for as long as both spouse lives

Question 22

Guaranteed Min. Withdrawal Benefit (GMWB)

Answer 22

Receive a regular payment ONLY until the annuitant has received the amount equal to the principal account value (or until end of contract term)

Question 23

Lifetime Withdrawal Benefit/Lifetime INcome

Answer 23

a rider is added to the contract, guaranteeing regular periodic payemtn for the lifetime of the annuitant even if account balance goes to zero.
COST: Cannot cash out the contact
**NOT GOOD FOR those planning short retirements

Question 24

Are contributions to annuities made with pre-tax or after-tax dollars?

Answer 24

after-tax dollars, unless under employer-sponsored qualified retirement plan

Question 25

What amount is taxable upon witdrawal

Answer 25

the amount in excess of cost basis

Question 26

If random withdrawal option is picked, how are distributions taxed?

Answer 26

LIFO (all earning withdrawn first at ordinary income tax rates)

Question 27

Is there a capital gains tax on annuities contract?

Answer 27

No