the following are all characteristics of variable annuities except:

Cashing out life insurance policies or VAs where steep surrender charges are likely to exist, particularly in the earlier years of those contracts, is also considered abusive. Question #32 of 48Question ID: 606815 D) The fact that periodic payments into the contract may increase or decrease. Reference: 12.2.1 in the License Exam. The value of accumulation and annuity units varies with the investment performance of the separate account. holder dies sooner than expected, the ins. When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. A security is any investment for profit with management performed by a third party. Sub accounts and mutual funds are conceptually. You can tailor the income stream to suit your needs. 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. D)value of accumulation units. D)Joint and last survivor annuity. C)100% tax deferred. A)each annuity unit's value and the number of annuity units vary with time. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). D)II and III. D)Variable annuity contract with a discussion regarding legislative risk, A VA with its investments in the separate account subject to market risk would not align with the customer's objective. There is no clear answer to this. Variable annuity salespeople must register with all of the following EXCEPT: Your answer, the state banking commission., was correct!. Based on this information the RR should: withdraw funds without any tax consequences. Though there is no beneficiary designation during the annuitization, this is not an issue for this annuitant. Future annuity payments will vary according to the separate account's performance. Reference: 12.1.2 in the License Exam, Question #39 of 48Question ID: 721469 A)equity funds. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. The growth of the annuitys value and/or the benefits paid may be fixed at a dollar amount or by an interest rate, or may grow by a specified formula. 3. Many annuity companies offer a variety of investment options. The accumulation period of a variable annuity may continue for many years. Variable annuity contracts were devised to help investors keep pace with inflation. Variable annuities gave buyers a chance to benefit from rising markets by investing in a menu of mutual funds offered by the insurer. Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. U.S. Securities and Exchange Commission. Annuities are similar to other forms of investing in that the owner invests money with the hope that it will gain in value, but annuities also come with higher fees than most mutual funds. A)the number of annuity units becomes fixed when the contract is annuitized. Money in a variable annuity is invested in a fundlike a mutual fund but one open only to investors in the insurance companys variable life insurance and variable annuities. co. actuaries. Reference: 12.1.1 in the License Exam. Reference: 12.1.4 in the License Exam. 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. The separate account performance compared to an assumed interest rate. For example, individuals can invest in a fixed annuity that credits a specified interest rate, similar to a bank Certificate of Deposit (CD). Question #44 of 48Question ID: 606797 guarantees payments for a certain period of time. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. B)changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. How Are Nonqualified Variable Annuities Taxed? Brainstorm a list of criteria by which you would select and prioritize projects. \hspace{5pt}\text{Drawing}&&&\\ Therefore, variable annuities must be registered with the state insurance commission and the SEC. Your customer in his early 30s has received a modest inheritance from a relative. The time period depends on how often the income is to be paid. are purchased primarily for their insurance features. Your client owns a variable annuity contract with an AIR of 4%. The most popular type of variable annuity is a deferred annuity. The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. Question #46 of 48Question ID: 606796 Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. An example would be if a life annuity with 10-year period certain contract holder died after 5 years, payments would continue for 5 more years to the beneficiary and then stop. used for the investment of funds paid by contract holders. the state banking commission. Distributions to the annuitant will fluctuate during the payout period. A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as. Variable Annuities. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. Each of the remaining statements are true. 4.5 Variable Products Flashcards | Chegg.com . C)I and IV. A) The most important consideration in purchasing a VA is to be aware that benefit payments will fluctuate with the investment performance of the separate account. VA contracts must be sold by prospectus due to the characterization of the separate accounts as securities, which must be registered under the Securities Act of 1933 & the Investment Co. Act of 1940. In recent years, annuity companies have created various types of floors that limit the extent of investment decline from an increasing reference point. Your answer, Purchasing power risk., was correct!. D)I and IV. It is a variable annuity. All of the following statements are true regarding both mutual funds and variable annuities EXCEPT: a. the return to investors is dependent on the performance of the securities in the underlying portfolio b. the investment company act of 1940 is the regulating legislation c. distributions from the underlying mutual fund are taxable to the holder in the year the distribution is made d. the . When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. You dont have to worry about it anymore. B) the state insurance department. used for the investment of funds paid by contract holders. Reference: 12.3.3 in the License Exam, Question #34 of 48Question ID: 606834 B)Variable annuities. In March, the actual net return to the separate account was 8%. Your answer, Variable annuity., was correct!. A) The fact that the annuity payment may increase or decrease. B)value of annuity units. A)variable annuities will protect an investor against capital loss. Variable annuity salespeople must register with all of the following EXCEPT: 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. The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? a variable annuity guarantees payments for life. If you need to withdraw money from the account because of a financial emergency, you may face surrender fees. B)I and III. The remainder of the premium is invested in the separate account. Reference: 12.3.3 in the License Exam. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: 1. a VA guarantees an earnings rate of return, 2. a VA does not guarantee an earnings rate of return, 4. a VA does not guarantee payments for life. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. Variable annuities offer investors choices among a number of complex contract features and options. B)part earnings and part cost basis C)prime rate. Any withdrawals you make prior to the age of 59 may also be subject to a 10% tax penalty. She will receive the annuity's entire value in a lump-sum payment. Reference: 12.1.2 in the License Exam, Question #21 of 48Question ID: 606812 C) suitable due to the death benefit features of a variable annuity. Having a supplemental income stream for retirement and keeping pace with inflation should be the reasons to consider a VA as suitable, but not preservation of capital. C)Variable annuity contract with a discussion regarding interest rate risk & securities licenses. An annuity is an agreement for one person or organization to pay another a series of payments. The value of a variable annuity is based on the performance of an underlying portfolio of sub accounts selected by the annuity owner. Question #41 of 48Question ID: 606801 Must provide full and fair disclosure, 2. Cram has partnered with the National Tutoring Association. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. Individuals are reducing their overall risk, because only part of the money is being put in each investment. The annuitized payments are viewed for tax purposes as D) unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. co. will have to pay the death benefit sooner than expected - that is, before receiving some of the expected premium payments. Your customer, still working, informs you that she will be funding a VA you have recommended from 2 sources: a refinancing of her primary home where she will be able to draw out equity that has built up since it was purchased 15 years ago, and cashing out another VA that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. That can adversely affect your returns over the long term, compared with other types of investments. Who assumes the investment risk in a variable annuity contract? For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. The # of VA accumulation units can rise during the accumulation period when additional units are being purchased. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. It may decrease in value. Question #13 of 48Question ID: 606822 The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. A)Corporate debt securities A life with period certain contract guarantees payments for a specified number of years to a named beneficiary if the annuitant dies during that time. C)insurance companies keep variable annuity funds in separate accounts from other insurance products. Immediate life annuity with 10-year period certain. The upside was the possibility of higher returns during the accumulation phase and a larger income during the payout phase. A variable annuity is both an insurance and a securities product. A)number of annuity units. You can learn more about the standards we follow in producing accurate, unbiased content in our. required to be located off of the company's premises. B)I and IV. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. Reference: 12.1.4.1 in the License Exam. Most variable annuities are structured to offer investors many different fund alternatives. Meanwhile, options like an annuity can provide a guaranteed income during, With a deferred annuity, you make a one-time payment to the insurance. How is the distribution taxed? 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. C)It will be higher. When the first party dies, the annuity payment is made to the survivor. 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. must precede every sales presentation. Variable annuities are regulated by state insurance departments and the federal Securities and Exchange Commission. co. will have to continue payments longer than expected. D)0. C)3800. Once the contract is annuitized, monthly payments to the customer are: A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. Your customer, still working, informs you that she will be funding a variable annuity you have recommended from 2 sources: a refinancing of her primary home where she will be able to draw out equity that has built up since it was purchased 15 years ago, and cashing out another variable annuity that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. A variable annuity is a security and must be registered with the SEC, not FINRA. a variable annuity guarantees an earnings rate of return. Fixed annuities are regulated by state insurance departments. holder lives longer than expected, 4. a life ins. C)III and IV. Question #22 of 48Question ID: 606803 The number of annuity units rises once annuitization begins. All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. A policyholder will make a lump sum payment or a series of payments in exchange for a guaranteed amount of income. To prevent this situation individuals can buy a guaranteed period with the immediate annuity. B)a majority vote from the shareholders is required to change the investment objectives. C)none of these. Variable Annuities. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? withdraw funds without any tax consequences. All of the following are characteristics of a variable annuity, except: a. A VA is a security & must be registered with the SEC, not FINRA. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. can be sold by someone with an insurance license only. She may choose to receive monthly payments for the rest of her life. A)II and IV. Reference: 12.2.1 in the License Exam, Question #48 of 48Question ID: 606835 The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. 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. U.S. Securities and Exchange Commission. You have created 2 folders. IncreaseDecreaseNormalBalanceBalancesheetaccounts:AssetCreditLiabilityCreditOwnersequity:CapitalCreditDrawingIncomestatementsaccounts:RevenueCredit(j)ExpenseCreditDebit\begin{array}{lccc} The earnings on dollars invested into a variable annuity accumulate tax deferred, which is why variable annuities are popular products for retirement accumulation. D) Mutual Fund portfolio consisting of blue chip stocks. If the customer takes a withdrawal of $10,000, what are the tax consequences? C)III and IV. As part of the registration requirements, a prospectus must be filed & distributed to prospective investors. A prospectus for a variable annuity contract: Question #15 of 48Question ID: 606804 A separate account will invest in a number of different securities. D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. Life annuity has the largest payout because less risk is assumed by the insurance company. If this client is in the payout phase, how would his April payment compare to his March payment? Fixed annuities, on the other hand, provide a guaranteed return. D)I and III. GuranteedExamLife Flashcards by Gabriel Martinez | Brainscape Question #17 of 48Question ID: 606802 Variable annuities must be registered with: B)It will be lower. B)variable annuities are classified as insurance products. CDs insured by the FDIC. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? The separate account is NOT likely to invest in: Variable annuities should be considered long-term investments due to the limitations on withdrawals. He must ensure that the client, in addition to meeting suitability requirements, is aware of all of the following EXCEPT: A) a VA contract will provide a fluctuating monthly check upon the annuitization of the contract. A lifetime immediate annuity converts an investment into a stream of payments that last until the annuity owner dies. Reference: 12.3.4 in the License Exam. In the case of deferred annuities, this is often referred to as the accumulation phase. The growth portion is subject to a 10% penalty. B. suitable regardless of funding sources, D. suitable is she has enough equity in the home to fund the VA without cashing out the other VA contract. Oct. 2014, Subjects: Annuity Contracts,Purchasing Annuities,Receiving Distribution from Annuities,Variable Life. co. products that should be purchased primarily for the ins. Thanks for choosing us. But again, the need to designate beneficiaries is not an issue for this annuitant. C)the payout plans provide the client income for life. Once a variable annuity has been annuitized: vote on proposed changes in investment policy. In this case, the investor is taking a lump-sum distribution before reaching age 59- and must pay an additional 10% penalty on the taxable amount. Variable annuities were introduced in the 1950s as an alternative to fixed annuities, which offer a guaranteedbut often lowpayout during the annuitization phase. The annuity unit's value represents a guaranteed return. \text{Income statements accounts:}&&&\\ B) Any tax due is deferred. D)II and IV. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. However, if you take a withdrawal during the contractssurrender period, which can be as long as 15 years, youll generally have to pay a surrender fee. Reference: 12.3.2.1 in the License Exam. Her intent was to use the funds for the down payment on a house after graduation. With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. A variation of lifetime annuities continues income until the second one of two annuitants dies. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. The fund is kept within an IHT protected pension trust and can be passed down using a spousal bypass trust (SBT) can be used with personal pension plans to p Any purchase of securities will contain an element of risk. Therefore only a fixed annuity could be considered as suitable. 2. D)I and III. withdraw funds without any tax consequences. C)II and IV. A)accumulation shares. Annuities are complicated products, so that may be easier said than done. A variable annuity is both an insurance and a securities product. D)suitable due to the relative safety of the investment. a variable annuity does not guarantee an earnings rate of return. B)4200. 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!. required to be located off of the company's premises. A)exempt from taxes Your answer, Life annuity., was correct!. The downside was that the buyer was exposed to market risk, which could result in losses. D)with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed, With guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is not guaranteed because payments stop when the annuitant has received an amount equal to the principal account value or the contract term ends. For a retired person, which of the following investments would provide the greatest protection against inflation? It credits a minimum rate of interest, just as a fixed annuity does, but its value is also based on the performance of a specified stock indexusually computed as a fraction of that indexs total return. Explaining What have been the major population changes since the first census in 1790? 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. Fixed period annuities A fixed period annuity pays an income for a specified period of time, such as ten years. D)money market funds. Is required by the Securities Act of 1933, 4. Many variable annuities invest the separate account in mutual funds. B) the rate of return is determined by the underlying portfolio's value, C) such an annuity is designed to combat inflation risk, D) the number of annuity units becomes fixed when the contract is annuitized. Can I Borrow from My Annuity for a House Down Payment? C. variable annuities will protect an investor against capital loss. The # of accumulation units can rise during the accumulation period, 3. \text{Owner's equity:}&&&\\ Which of the following statements regarding variable annuities are TRUE? However, it does guarantee payments for life (mortality). Reference: 12.1.2.1.1 in the License Exam. What is the taxable consequence of this withdrawal to your client? Among annuities, variable annuities differ from fixed annuities, which provide a specific and guaranteed return. The growth portion is taxed as ordinary income. A)II and IV. How is the distribution taxed? Question #20 of 48Question ID: 606808 Must precede every sales presentation. A life annuity is an insurance product that features a predetermined periodic payout amount until the death of the annuitant. She may choose to receive monthly payments for the rest of her life. A)Fixed annuities. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. can be sold by someone with only an insurance license Reference: 12.1.2.1.1 in the License Exam. A)III and IV. C)Growth mutual funds Question #36 of 48Question ID: 606805 What Are the Biggest Disadvantages of Annuities? For anyone who may need access to the sum invested at a later time, a VA would not be considered a suitable recommendation. When a variable annuity contract is annuitized, the number of annuity units is fixed. SIE Practice Exam #2 (score 93%) Flashcards | Quizlet C)II and III. Question #1 of 48Question ID: 606828. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. All of the following statements concerning a variable annuity are correct EXCEPT: A. the invested money will be professionally managed according to the issuers' investment objectives. B. separate account may consist of mutual funds. Variable annuities are designed to combat inflation risk. the SEC. is required by the Securities Act of 1933. The following annuities are available in fixed or variable form: 1. C) a VA contract does not guarantee any type of return. Reference: 12.2.1 in the License Exam. Your answer, The entire $10,000 is taxable as ordinary income., was correct!. However, a discussion should occur regarding the risks that are associated with a fixed annuity; purchasing power risk. Your answer, The policyowner., was correct!.

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