the following are all characteristics of variable annuities except:

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. All of the following statements regarding variable annuities are true EXCEPT: A)the number of annuity units becomes fixed when the contract is annuitized. b. Equity-Indexed Annuity: How They Work. and Their Limitations - Investopedia Find out how you can intelligently organize your Flashcards. 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. Your answer, Purchasing power risk., was correct!. Which of the following are defined as securities? A universal variable life policy should be purchased primarily for its insurance features, not its investment features. holder dies sooner than expected. Variable annuities are regulated by state insurance departments and the federal Securities and Exchange Commission. SIE Final #2 Flashcards | Quizlet co., assumes the investment risk. 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. B)cost of living. Many variable annuities invest the separate account in mutual funds. The number of annuity units is fixed at the time of annuitization. must precede every sales presentation. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. 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. regulated under both securities and insurance laws. holder dies sooner than expected, the ins. One of the following would achieve that objective but a suitability discussion regarding it's risk should also occur. \hspace{5pt}\text{Revenue}&\text{Credit}&(j)&\\ Options. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. Immediate annuities are also available in fixed or variable forms. C)Mortality risk. Once a variable annuity has been annuitized: With regard to a variable annuity, all of the following may vary EXCEPT: An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. In addition, insurer charges ten percent penalty if insured withdraw before he or she turns to fifty nigh and six month or become disabled, unless return wit Current assumption insurance is used to act like a bank; policy holders can put a good amount of money in an account to earn interest. Reference: 12.3.1 in the License Exam. In other words, the money in a fixed annuity will grow and will not drop in value. All of the following characteristics are shared by both a mutual fund and a variable annuity's separate account EXCEPT: A)the client assumes the investment risk. 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)suitable due to the death benefit features of a variable annuity. Variable annuities should be considered long-term investments due to the limitations on withdrawals. The growth portion is taxed as a capital gain. "Variable Annuities: What You Should Know," Page 10. Reference: 12.2.1 in the License Exam. Which of the following statements regarding variable annuities are TRUE? A variable annuity's separate account is: The separate account is used for both variable life insurance and variable annuity investments. D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. This withdrawal flexibility is achieved by adjusting the annuitys value, up or down, to reflect the change in the general level of interest rates from the start of the selected time period to the time of withdrawal. B)I and III. Chapter 4: Annuities Flashcards | Chegg.com D)Municipal bonds. A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. Question #25 of 48Question ID: 606819 A)II and IV. Distributions to the annuitant will fluctuate during the payout period. In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. An annuity is an agreement for one person or organization to pay another a series of payments. As part of the registration requirements, a prospectus must be filed & distributed to prospective investors. C. variable annuities are classified as insurance products. He originally invested $50,000 four years ago. 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. She will receive the annuity's entire value in a lump-sum payment. Which Earns More: Variable or Fixed Annuities? 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. D)I and III. "Variable Annuities: What You Should Know," Page 3. The annuity unit's value represents a guaranteed return. Reference: 12.1.2.1.2 in the License Exam. If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? The separate account is NOT likely to invest in: An accumulation unit in a variable annuity contract is: Your answer, an accounting measure used to determine the contract owner's interest in the separate account., was correct!. If an annuitant lives longer than expected, the ins. GuranteedExamLife Flashcards by Gabriel Martinez | Brainscape Only variable annuities have payout plans that provide the client income for life. When the annuitization option is selected, each payment represents both capital and earnings. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. Your answer, The entire $10,000 is taxable as ordinary income., was correct!. by jmacewe, Variable Annuity: Definition and How It Works, Vs. Fixed Annuity Types of Annuities Flashcards by Liliana Benavides | Brainscape 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. Thanks for choosing us. Cram has partnered with the National Tutoring Association. 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. B)suitable regardless of funding sources People who own an immediate annuity (that is, who are receiving money from an insurance company), are afforded some protection from creditors. How Are Nonqualified Variable Annuities Taxed? \text{Owner's equity:}&&&\\ Value in separate account b. Accumulation units c. Death benefit d. Cash value Variable whole life policies have a guaranteed minimum death benefit. used to escrow late or otherwise delinquent premium payments. Explaining What have been the major population changes since the first census in 1790? A)unsuitable because the return on something as conservative as a variable annuity tends to be low. Her intent was to use the funds for the down payment on a house after graduation. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. Question #11 of 48Question ID: 606816 Investment earnings of all annuities, qualified and nonqualified, are tax-deferred until they are withdrawn; at that point they are treated as taxable income (regardless of whether they came from selling capital at a gain or from dividends). 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. The number of accumulation units is always fixed throughout the accumulation period. \hspace{5pt}\text{Capital}&\text{Credit}&&\\ 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. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. She may choose to receive monthly payments for the rest of her life. Reference: 12.3.4 in the License Exam. Question #46 of 48Question ID: 606796 A)II and III C)the SEC. In a variable life annuity with 10-year period certain, a contract holder receives: All of the following statements about variable annuities are true EXCEPT: Your answer, a minimum rate of return is guaranteed., was correct!. [B]The holders may vote to change investment objectives. C)Money market fund. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. . D)II and IV. have investment risk that is assumed by the investor D)II and III. Some state statutes and court decisions also protect some or all of the payments from those annuities. B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. are purchased primarily for their insurance features This would not align with the couple's criteria for coverage as long as they both live. Question #26 of 48Question ID: 606811 In a variable annuity contract, the provision that guarantees the annuitant payments for life is called the: Your answer, mortality guarantee., was correct!. Premiums made into the annuity purchase accumulation units. B)I and IV. For a retired person, which of the following investments would provide the greatest protection against inflation? 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) the state insurance department. D)money market funds. How is the distribution taxed? 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 his client. A)variable annuities may only be sold by registered representatives. The value of a variable annuity is based on the performance of an underlying portfolio of sub accounts selected by the annuity owner. C)I and IV. Reference: 12.2.1 in the License Exam. Contributions to a nonqualified variable annuity are not tax deductible. The accumulation unit's value is used to calculate the total value of the account. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. All of the following statements about variable annuities are true EXCEPT: a variable annuity does not guarantee an earnings rate of return. Based only on these facts, the VA recommendation is: A. not suitable because a lifetime income rider is only for someone who is already retired. The investor purchased accumulation units. Chapter 12: Variable Annuities. Registration with FINRA is de factor registration with the SEC; no registration is required by the state banking commission. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: The separate account is NOT likely to invest in: The earnings on dollars invested into a variable annuity accumulate tax-deferred, which is why variable annuities are popular products for retirement accumulation. Each of the remaining statements are true. D)Any tax due is deferred. In general, annuities have the following features. used for the investment of funds paid by contract holders. An investor who purchases a fixed annuity contract assumes purchasing-power risk. C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. 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. a variable annuity does not guarantee payments for life. D)variable annuities offer the investor protection against capital loss. Annuities are complicated products, so that may be easier said than done. The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? C) Life annuity with 10 year period certain. Chapter 12: Variable Annuities Flashcards | Quizlet These contracts cover both lives and will continue to make payments until the last spouse dies. With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. Designed to protect against inflation. is required by the Securities Act of 1933. \hspace{5pt}\text{Drawing}&&&\\ The value of accumulation and annuity units varies with the investment performance of the separate account. C)II and IV. 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. All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: D)I and II. Fixed annuities are regulated by state insurance departments. Question #42 of 48Question ID: 606830 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. C)prime rate. 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. The remainder of the premium is invested in the separate account. Investopedia requires writers to use primary sources to support their work. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary.

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