the following are all characteristics of variable annuities except:

Cram has partnered with the National Tutoring Association. If an annuitant lives longer than expected, the ins. Premiums made into the annuity purchase accumulation units, c. The separate account provides for a guaranteed minimum return, d. Each month the payment will increase, decrease, or remain the same as the previous months payment based on the actual return as compared to the assumed interest rate (AIR). The funds in an annuity are off-limits to creditors and other debt collectors. Question #44 of 48Question ID: 606797 Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs. Immediate life annuity with 10-year period certain. B)a minimum rate of return is guaranteed. There is no clear answer to this. In the first year, you decide to withdraw $50,000. Qualified annuities A qualified annuity is one used to invest and disburse money in a tax-favored retirement plan, such as an IRA or Keogh plan or plans governed by Internal Revenue Code sections 401(k), 403(b) or 457. Your answer, Variable annuity., was correct!. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. Variable annuity contracts were devised to help investors keep pace with inflation. In deciding whether to put money into a variable annuity versus some other type of investment, its worth weighing these pros and cons. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. D)I and II. The accumulation period of a variable annuity may continue for many years. A customer has a nonqualified variable annuity. B)I and III. 1. The number of accumulation units is always fixed throughout the accumulation period. D)Dow Jones Industrial Average. Variable annuities are regulated by state insurance departments and the federal Securities and Exchange Commission. The upside was the possibility of higher returns during the accumulation phase and a larger income during the payout phase. In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. Value in separate account b. Accumulation units c. Death benefit d. Cash value Variable whole life policies have a guaranteed minimum death benefit. If this client is in the payout phase, how would his April payment compare to his March payment? Variable annuity salespeople must register with all of the following EXCEPT: Your answer, the state banking commission., was correct!. Please sign in to access member exclusive content. D)I and III. D)suggest to the client that perhaps a loan or refinancing his vacation home might be a better way to fund the contract purchase. B)fixed in value until the holder retires. C)III and IV B. variable annuities offer the investor protection against capital loss. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic pay-ments to you, beginning either immediately or at some future date. People who own an immediate annuity (that is, who are receiving money from an insurance company), are afforded some protection from creditors. Life annuity has the largest payout because less risk is assumed by the insurance company. \hspace{5pt}\text{Expense}&&\text{Credit}&\text{Debit}\\ C)none of these. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. The following are all characteristics of variable annuities EXCEPT: [A]The investment portfolio contains insurance protections against losses. A)II and III Question #45 of 48Question ID: 606795 If you need to withdraw money from the account because of a financial emergency, you may face surrender fees. A separate account will invest in a number of different securities. Once a variable annuity has been annuitized: Your answer, each annuity unit's value varies with time, but the number of annuity units is fixed., was correct!. U.S. Securities and Exchange Commission. 5. Your answer, The entire $10,000 is taxable as ordinary income., was correct!. D. Value of each annuity unit each month. withdraw funds without any tax consequences. The growth of the annuitys value and/or the benefits paid does not depend directly or entirely on the performance of the investments the insurance company makes to support the annuity. If the annuitant should die during that time, any death benefit would be paid to a beneficiary designated by the annuitant at the time the annuity was purchased. The nature of the securities invested in-bonds and growth stocks-makes it necessary that sales representatives and their principals be licensed in securities as well as insurance. A)I and IV. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. The contract has a schedule of surrender charges, beginning with a 7% charge in the first year, and declining by 1% each year. This tax deferral is also true of 401(k) s and IRAs; however, unlike these products, there are no limits on the amount one can put into an annuity. can be sold by someone with only an insurance license Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. B. separate account may consist of mutual funds. A VA does not guarantee an earnings rate because earnings will depend on the performance of the separate account. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. A)the number of annuity units becomes fixed when the contract is annuitized. vote for the investment adviser. The payout compared to the initial payout upon annuitization. The most popular type of variable annuity is a deferred annuity. Question #15 of 48Question ID: 606804 A client has purchased a nonqualified variable annuity from a commercial insurance company. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. Your answer, Variable annuities., was correct!. D)suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract, Based on the information given in the question, the VA recommendation would not be suitable. If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? holder lives longer than expected, 4. a life ins. You have created 2 folders. Required fields are marked *. Question #32 of 48Question ID: 606815 Here is how guaranteed lifetime annuities work. The payment might be invested for growth for a long period of timea single premium deferred annuityor invested for a short time, after which the payout beginsa single premium immediate annuity. If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? The annuity has grown to value of $60,000. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. withdraw funds without any tax consequences. Before buying a variable annuity, investors should carefully read the prospectus to try to understand the expenses, risks, and formulas for calculating investment gains or losses. Second, equity-indexed annuities don't typically include reinvested dividends when calculating index. Reference: 12.3.4 in the License Exam, Chapter 16: U.S. Government and State Rules a, Chapter 17: Other SEC and SRO Rules and Regul, Chapter 15: Ethics, Recommendations, and Taxa, Chapter 13: Direct Participation Programs, Fundamentals of Financial Management, Concise Edition, Joe B. Hoyle, Thomas F. Schaefer, Timothy S. Doupnik, Carl Warren, James M Reeve, Jonathan E. Duchac. In addition, an element of risk must be present. That can adversely affect your returns over the long term, compared with other types of investments. is required by the Securities Act of 1933. Reference: 12.1.4.1 in the License Exam. This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. For this potential advantage, the investor, rather than the insurance company, assumes the investment risk. Question #29 of 48Question ID: 606831 D)It cannot be determined until the April return is calculated. For example, an individual might buy a nonqualified single premium deferred variable annuity. C)Variable annuity contract with a discussion regarding interest rate risk B)Universal variable life policy. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. Reference: 12.1.4.1 in the License Exam. audio not yet available for this language, {"cdnAssetsUrl":"","site_dot_caption":"Cram.com","premium_user":false,"premium_set":false,"payreferer":"clone_set","payreferer_set_title":"Variable Annuities","payreferer_url":"\/flashcards\/copy\/variable-annuities-5097323","isGuest":true,"ga_id":"UA-272909-1","facebook":{"clientId":"363499237066029","version":"v12.0","language":"en_US"}}. Question #18 of 48Question ID: 606827 A registered representative explaining variable annuities to a customer would be CORRECT in stating that: Your client owns a variable annuity contract with an AIR of 4%. Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? Which of the following statements regarding variable annuities are TRUE? A)not suitable Annuities | FINRA.org Question #27 of 48Question ID: 606818 Your answer, The entire $10,000 is taxable as ordinary income., was correct!. Please sign in to share these flashcards. A)number of annuity units. An investor who has purchased a nonqualified variable annuity has the right to: Which of the following statements regarding variable annuities are TRUE? Which is it? This recommendation is: A) suitable due to the relative safety of the investment. CDs insured by the FDIC. Therefore, variable annuities must be registered with the state insurance commission and the SEC. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? can be sold by someone with an insurance license only. Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. A variable annuity is both an insurance and a securities product. B)cost of living. Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. A variable annuity's separate account is: The second phase is triggered when the annuity owner asks the insurer to start the flow of income, often referred to as the payout phase. Sub accounts and mutual funds are conceptually identical, but sub accounts don't have ticker symbols that investors can easily type into a fund tracker for research purposes. Question #12 of 48Question ID: 606814 D)I and III. A)unsuitable because the return on something as conservative as a variable annuity tends to be low. the producer is responsible for providing the applicant a summary of coverage that includes all of the following EXCEPT. In addition, an element of risk must be present. When a VA contract is annuitized, the # of annuity units is fixed. If one purchases an annuity for a set price, the issuing company would invest the funds and hold them until they are supposed to be disbursed, generally based on the owner's age. Reference: 12.1.2 in the License Exam. We weren't able to detect the audio language on your flashcards. This can be particularly valuable if they are using a strategy called rebalancing, which is recommended by many financial advisors. a life insurance holder lives longer than expected. What is the taxable consequence of this withdrawal to your client? Future annuity payments will vary according to the separate account's performance. For each of the items (a) A lifetime immediate annuity converts an investment into a stream of payments that last until the annuity owner dies. What Are the Distribution Options for an Inherited Annuity? a variable annuity guarantees payments for life. You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. Some fixed annuities credit a higher interest rate than the minimum, via a policy dividend that may be declared by the companys board of directors, if the companys actual investment, expense and mortality experience is more favorable than was expected. Question #1 of 48Question ID: 606828. D)Any tax due is deferred. All of the following characteristics are shared by both a mutual fund and a variable annuity's separate account EXCEPT: Your answer, the payout plans provide the client income for life., was correct!.

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