The value of an annuity unit varies from month to month according to the performance of the separate account in comparison to the assumed interest rate. There are also immediate annuities, which begin paying income right away. He wants to ensure that the client, in addition to meeting suitability requirements, is aware of certain variable annuity contract characteristics. Since the client is older than 59 at the time of distribution, the additional 10% penalty tax is not incurred. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. You can buy an annuity with either a lump sum or a series of payments, and the accounts value will grow accordingly. The growth portion is subject to a 10% penalty. Universal variable life policies C) A 25year old public school teacher who would like to save enough for the purchase of her first home within the next 3 to 5 years. A variable annuity is a type of annuity contract in which the value can vary based on the performance of an u . B) II and IV. continues payments as long as one annuitant is alive. Once the contract is annuitized, monthly payments to the customer are: A) Age 56, available cash to invest, makes the maximum retirement plan contributions to an existing IRA and 401(k) plan Payments from a variable annuity depend on the securities' value in the separate account's underlying investment portfolio. D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. Outgoing personality with the ability to develop relationships (i.e., "People Person") and a sincere desire to help others Fearless, positive attitude, and willingness to be accountable for results Organized, detail-oriented, and excellent time-management skills A desire for continuous learning C) II and IV. C) III and IV. *A variable annuity is a security and must be registered with the SEC, not FINRA. covers more than one person. All of the following are accurate statements to make to the client EXCEPT Over the following year, the stock fund has a 10% return, and the bond fund has a 5% return. B) I and II. A passion for serving customers and a personal commitment to following through in a dynamic, fast-paced environment. C)the number of annuity units is fixed, and their value remains fixed. Word bank:Fixed, Variable Fixedannuities provide a guaranteed rate of return, whereas Variableannuities provide conservative to aggressive investments whose rates of return are not guaranteed. D) None, because it is the proceeds from a life insurance company. Upon John's death during the accumulation period, Sue takes a lump-sum payment. B) the client may vote for the board of directors or board of managers. c. The separate account provides for a guaranteed minimum return. A. D) Variable annuities. This compensation may impact how and where listings appear. In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. A)It will stay the same. B)I and III. Question #13 of 48Question ID: 606822 DR:BASSANT ADEL 9 QUIZ CH 6 Choose the correct answer: 1-Insurance policy benefits are classified on an insurance company's balance sheet as A. liabilities, because the insurance company may have to pay out the benefits B. assets, because policy benefits are valuable to the company C. liabilities, because customers may fall behind on their premium payments D. assets, because policy benefits . III) A hierarchy of corporate staff evaluates divisions' plans and performance. D)II and IV. D)the safety of the principal invested. D)I and II. B) the state insurance department. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. C) taxed as ordinary income only to the extent of earnings. B) It will be lower. C) with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed You can learn more about the standards we follow in producing accurate, unbiased content in our. B) The entire $10,000 is taxable as ordinary income. For example, when paying rent, the rent payment (PMT) *Waiver of premium is a benefit available on qualified life insurance contracts, usually in the form of a rider, which provides for the waiver of premium payments that fall due while the policyholder is totally disabled. A) be paid to a designated beneficiary. He originally invested $29,000 4 years ago; it now has a value of $39,000. The most popular type of variable annuity is a deferred annuity. U.S. Securities and Exchange Commission. The tax on this is $2,800 ($10,000 x 28%). The AG49-A Revisions a variable annuity guarantees an earnings rate of return. C) III and IV. An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are. a variable annuity does not guarantee payments for life. a life insurance holder dies sooner than expected. Who assumes the investment risk in a variable annuity contract? *BEST Suited for VA-Age 56, available cash to invest, maxes out IRA and 401(k) plan VA will be supplemental income, would not be suitable for cust. B) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. It's somewhat similar to a variable life insurance policy in that: You can choose how the product's value is invested. And, unlike a fixed annuity, variable annuities do not provide any guarantee that you will earn a return on your investment. A) mutual fund units. C) I and III. While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount. Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions. D) I and IV Generally, a life-only contract pays the most per month because payments cease at the annuitant's death. In deciding whether to put money into a variable annuity versus some other type of investment, its worth weighing these pros and cons. Annuity units are units of ownership when the contract is in the payout stage. D)Any tax due is deferred. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). A) The fact that the annuity payment may increase or decrease. During the accumulation phase, you make purchase payments. The income was deferred from tax over the plan's life, so it is taxable as ordinary income once distributed. C) 100% tax free. A)the number of annuity units becomes fixed when the contract is annuitized. A) 4000. *Distributions from a nonqualified plan represent both a return of the original investment made in the plan with after-tax dollars (a nontaxable return of capital) and the income from that investment. The growth portion is subject to a 10% penalty. \hspace{10pt} \text{Office salaries} & \underline{234,000} & \hspace{10pt} \text{Medicare tax withheld} & 15,210\\ 's dividend yield was % last year. On an annual basis, the machine will produce 20,000 units with an expected selling price of $10, prime costs of$6 per unit, and a fixed cost allocation of $3 per unit. A) I and III. The wage for applicants for this position is $45,979.00 per year. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. C)earnings only and taxable A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as A)the yield is always higher than mortgage yields. Given that all of the current retirement investments are subject to market risk, the customer wants these new funds to have no market risk exposure. Variable annuities involve underlying equity investments in a separate account. How Are Nonqualified Variable Annuities Taxed? Question #22 of 48Question ID: 606803 Reference: 12.3.2.1 in the License Exam. An individual retirement annuity is an investment vehiclesimilar to an individual retirement accountthat is offered by insurance companies. A)II and IV. *Since this is a nonqualified annuity (with no tax deduction), the client pays taxes only on the growth portion or, in this case, $10,000. A) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero \hspace{10pt} Medicare, 1.5%1.5\%1.5% The value of the separate account is now $30,000. However, because the client is not yet age 59- when making the withdrawal, he also pays a 10% penalty, or $1,000. B)Variable annuities. B) A 30 year old construction worker recently unemployed who wants to invest his severance pay amounting to 9 months salary. With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. Variable annuity salespeople must register with all of the following EXCEPT: Which of the following are defined as securities? B)I and III. III. A) It will be higher. Though its stated return might not be as high as the other choices potential returns, only a fixed annuity fits the objective and risk averse traits of this client. B) I and II. withdraw funds without any tax consequences. If at all you go deeper, then you will find a wide range of annuity products from a variety of companies. && \hspace{10pt}\text{Group insurance} & \underline{45,630}\\ Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. *VAs are less suitable for individuals who have not yet made maximum contributions to other retirement accounts such as IRAs and 401ks. Inflation-hedging, using both tax deferral combined with market growth potential, is made possible by variable annuities #. e) Are From the United States and Log on every day independently? A) Only during the payout period. Periodic payment deferred annuity. An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are Get Started. C) II and IV. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. Once the contract is annuitized, monthly payments to the customer are: 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. D) It cannot be determined until the April return is calculated. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. The work environment characteristics are normal office conditions. The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. Your customer is interested in a variable annuity but is unclear on some of the details regarding different specifications and riders that can be attached to the contract. Designed to protect against inflation. C)III and IV. A 3 D) The investment risk is shared between the insurance company and the policyowner. \hspace{10pt} \text{Warehouse salaries} & 110,000 & \hspace{10pt} \text{Social security tax withheld} & 51,714\\ B) II and IV. IV. The accumulation period of a variable annuity may continue for many years. 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. She may choose to receive monthly payments for the rest of her life. Determine whether the following events are independent or dependent. Therefore, ordinary income taxes will apply to the entire $10,000. D) value of accumulation units. continues payments only as long as all annuitants are still alive. D)value of accumulation units. The earnings are taxable but the cost basis is returned tax free. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. 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. There are two elements that contribute to the value of a variable annuity: the principal, which is the amount of money you pay into the annuity, and the returns that your annuitys underlying investments deliver on that principal over the course of time. B) be paid to any legal heirs as recognized by the annuitant's state of domicile. must provide full and fair disclosure. When the annuitization option is selected, each payment represents both capital and earnings. ($5,000) to a stock fund. D) II and IV. Are Variable Annuities Subject to Required Minimum Distributions? Reference: 12.3.3 in the License Exam. Question #25 of 48Question ID: 606819 Periodic payments are not a consideration because normally the payments into an annuity are level or in a lump sum. When may a variable annuity account be surrendered? B) allow customers to opt out of sharing of financial information with certain nonaffiliated firms. All of the following statements regarding variable annuities are true EXCEPT: A) I and III. Question #33 of 48Question ID: 606832 Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. C)The entire $10,000 is taxable as ordinary income. Reference: 12.3.1 in the License Exam. Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. C)Growth mutual funds Premiums made into the annuity purchase accumulation units. Life Insurance vs. Annuity: What's the Difference? D)an accounting measure used to determine payments to the owner of the variable annuity. C) number of accumulation units. Your client owns a variable annuity contract with an AIR of 4%. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. B)suitable regardless of funding sources Question #15 of 48Question ID: 606804 A 10% penalty applies only if distributions begin before age 59-. A) Any tax due is deferred. Reference: 12.1.1 in the License Exam. This includes transportation, food, lodging, and entertainment. Which 2 of the 4 client profiles would a VA be LEAST suitable for? The value of accumulation and annuity units varies with the investment performance of the separate account. C) Mutual fund portfolio consisting of blue chip stocks B) The policyowner. What Are the Biggest Disadvantages of Annuities? A) II and III. C) taxed as ordinary income only to the extent of earnings. What is the taxable consequence of this withdrawal to your client? Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. A) Fixed Annuity A)II and IV. C)suitable due to the death benefit features of a variable annuity. *As contributions are made with after-tax dollars, only the earnings generated are taxed on withdrawal. Dividing the funds available so as to fund 2 separate contracts, whether they be joint with last survivor or life income, would not be cost efficient for spouses. D)partially a tax-free return of capital and partially taxable. He makes the following four statements, all of which are true EXCEPT D) I and III. Indexed annuity owners receive credited interest tied to the fluctuations of the linked index An immediate annuity consists of a single premium An immediate annuity has a single premium. However, it does guarantee payments for life (mortality). B) I and III. a variable annuity does not guarantee payments for life. Investopedia requires writers to use primary sources to support their work. U.S. Securities and Exchange Commission. FINRA. Typically, they allow one withdrawal each year during the accumulation phase. The value of the annuity units varies. can be sold by someone with only an insurance license C)100% tax deferred. Question #31 of 48Question ID: 606836 Reference: 12.1.4.1 in the License Exam. Reference: 12.2.1 in the License Exam. C) During the annuity period. Which of the following are defined as securities? C) Tax-free municipal bonds used for the investment of funds paid by contract holders. A) 2800. A) I and II Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both insurance and securities licenses. D) payments continue until age 70-. The correct answer was: partially a tax-free return of capital and partially taxable. On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). A)value of underlying securities held in the separate account.