C)I and IV. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). In the case of deferred annuities, this is often referred to as the accumulation phase. A registered person recommends the purchase of a variable annuity to one of his clients. Variable annuities offer the possibility of higher returns and greater income than fixed annuities, but theres also a risk that the account will fall in value. D)each annuity unit's value is fixed, but the number of annuity units varies with time. holder lives longer than expected, 4. a life ins. An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. As part of his profile, he stresses that he has had uncomfortable experiences in the past with the stock market and is not inclined to invest in anything that is based on stock market performance and would opt for principal protection instead. All of the following statements regarding variable annuities are true EXCEPT: A variable annuity is both an insurance and a securities product. All of the following statements about variable annuities are true EXCEPT: Weight the criteria. A)Joint tenants annuity. C)the yield is always higher than bond yields. Balancesheetaccounts:AssetLiabilityOwnersequity:CapitalDrawingIncomestatementsaccounts:RevenueExpenseIncreaseCreditCreditCreditDecreaseCredit(j)CreditNormalBalanceDebit. IncreaseDecreaseNormalBalanceBalancesheetaccounts:AssetCreditLiabilityCreditOwnersequity:CapitalCreditDrawingIncomestatementsaccounts:RevenueCredit(j)ExpenseCreditDebit\begin{array}{lccc} A)There is no tax as the withdrawal is considered return of capital. The tax on this is $2,800 ($10,000 x 28%). Question #32 of 48Question ID: 606815 Reference: 12.1.2 in the License Exam. Meanwhile, options like an annuity can provide a guaranteed income during, With a deferred annuity, you make a one-time payment to the insurance. 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). U.S. Securities and Exchange Commission. What Are the Biggest Disadvantages of Annuities? A)the number of annuity units becomes fixed when the contract is annuitized. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. 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. 2. It may decrease in value. With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. D)I and IV. B)changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. 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. Pretend you are on the leadership team of a manufacturing company that is currently challenged by low-cost competition. 8. 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. However, they are protected by state guaranty associations in the event that the insurance company providing the product goes out of business. A life annuity is an insurance product that features a predetermined periodic payout amount until the death of the annuitant. In addition, an element of risk must be present. Equity-Indexed Annuity: How They Work. and Their Limitations - Investopedia C)number of accumulation units. D. Value of each annuity unit each month. Bear in mind that between the numerous feessuch as investment management fees,mortality fees, and administrative feesand charges for any additional riders, a variable annuitysexpenses can quickly add up. Reference: 12.1.2.1.1. in the License Exam. All of the following are characteristics of variable annuity contracts Upon John's death during the accumulation period, Sue takes a lump-sum payment. B)Two-thirds of the withdrawal is taxable as ordinary income. Variable Annuities | Investor.gov The # of VA accumulation units can rise during the accumulation period when additional units are being purchased. Reference: 12.2.1 in the License Exam. D) Mutual Fund portfolio consisting of blue chip stocks. C) The entire amount is taxed as ordinary income, because it is not life insurance. A)the state banking commission. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. Reference: 12.3.1 in the License Exam. The offers that appear in this table are from partnerships from which Investopedia receives compensation. For this potential advantage, the investor, rather than the ins. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. Many investments are taxed year by year, but the investment earningscapital gains and investment incomein annuities arent taxable until the investor withdraws money. Flexible premium annuities are only deferred annuities; that is, they are designed to have a significant period of payments into the annuity plus investment growth before any money is withdrawn from them. Under rebalancing, investors shift their investments periodically to return them to the proportions that represent the risk/return combination most appropriate for the investors situation. Reference: 12.3.3 in the License Exam. 7. A variable annuity is a type of annuity contract, the value of which can vary based on the performance of an underlying portfolio of sub accounts. B)suitable regardless of funding sources Fixed vs. Variable Annuities: Key Differences - Yahoo Finance However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. 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. 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. U.S. Securities and Exchange Commission. All of the following are traits of a Fixed Annuity, except:AThe purchasing power of a fixed dollar benefit amount decreases as the cost of living increasesBThe insurer's general account assets guarantee the fixed annuity contractCThe insurer bears any investment riskDThe actual rate of interest credited will be based on the state-published A fixed annuity is a contract between the policyholder and an insurance company. B) Any tax due is deferred. D) The ordinary income on the proceeds over the cost basis plus 10% of the net gain (if any) if Sue is younger than 59- years old. People who own an immediate annuity (that is, who are receiving money from an insurance company), are afforded some protection from creditors. 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. D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. Reference: 12.1.4.1 in the License Exam. a variable annuity does not guarantee payments for life. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: As with most retirement account options, withdrawals before the age of 59 will result in a 10% tax penalty. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. The number of accumulation units is always fixed throughout the accumulation period. B)II and III. A joint-and-last-survivor annuity is a payout option where: Your answer, two people are covered and payments continue until the second death., was correct!. Generally, a life only contract pays the most per month because payments cease at the annuitant's death. A policyholder will make a lump sum payment or a series of payments in exchange for a guaranteed amount of income. A)Fixed annuity contract with a discussion regarding purchasing power risk Reference: 12.1.1 in the License Exam. D)an accounting measure used to determine payments to the owner of the variable annuity. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. The nature of the securities invested in - bonds and growth stocks - makes it necessary that sales reps and their principals be licensed in securities as well as insurance. 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. \text{Balance sheet accounts:}\\ D)the safety of the principal invested. Reference: 12.3.3 in the License Exam. Immediate annuities are also available in fixed or variable forms. This compensation may impact how and where listings appear. "Variable Annuities: What You Should Know," Page 6. A client has purchased a nonqualified variable annuity from a commercial insurance company. co. will have to pay the death benefit sooner than expected - that is, before receiving some of the expected premium payments. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. If they buy a variable annuity, their money can be invested in stocks, bonds or mutual funds. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. The number of annuity units is fixed at the time of annuitization. Copyright 2023, Insurance Information Institute, Inc. Which is it? The # of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. 5. \end{array} D)II and III. Reference: 12.3.2.4 in the License Exam. Which of the following are defined as securities? Investopedia requires writers to use primary sources to support their work. a life insurance holder lives longer than expected. Nature of the underlying investment fixed or variable, Primary purpose accumulation or pay-out (deferred or immediate), Nature of payout commitment fixed period, fixed amount or lifetime, Premium payment arrangement single premium or flexible premium.
Sneaky Sasquatch Police Station,
Why Was Lee Broderick Disinherited,
Articles T