Question #29 of 48Question ID: 606831 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. continues payments as long as all annuitants are alive. The investor purchased accumulation units. The separate account performance compared to an assumed interest rate. Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. However, a discussion should occur regarding the risks that are associated with a fixed annuity; purchasing power risk. have investment risk that is assumed by the investor Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. The number of annuity units is fixed at the time of annuitization. [C]The portfolio is professionally managed. Because this is not guaranteed, the policyowner bears the investment risk. \text{Balance sheet accounts:}\\ co., assumes the investment risk. An individual retirement annuity is an investment vehiclesimilar to an individual retirement accountthat is offered by insurance companies. The number of annuity units is fixed at the time of annuitization. a variable annuity guarantees payments for life. What Are the Biggest Disadvantages of Annuities? Your client owns a variable annuity contract with an AIR of 4%. 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. are purchased primarily for their insurance features In general, annuities have the following features. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. D)Joint and last survivor annuity. D)value of accumulation units. A)Fixed annuities. The following are all characteristics of variable annuities EXCEPT: [A]The investment portfolio contains insurance protections against losses. D)an accounting measure used to determine payments to the owner of the variable annuity. Value in separate account b. Accumulation units c. Death benefit d. Cash value Variable whole life policies have a guaranteed minimum death benefit. The earnings are taxable but the cost basis is returned tax free. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. Mortality assumptions are based on life expectancy or mortality tables prepared by ins. D)suitable due to the relative safety of the investment. A variable annuity's separate account is: Therefore only a fixed annuity could be considered as suitable. C)I and IV. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. Reference: 12.3.3 in the License Exam. Typically, they allow one withdrawal each year during the accumulation phase. VAs, blue chip mutual fund portfolios, ETFS & ETNs are all tied to market performance in some way and have risk characteristics that would not align in terms of suitability for this client. You can tailor the income stream to suit your needs. If the owner of a VA dies during the accumulation period, any death benefit will: B) be paid to the issuing company to complete the plan, C) be paid to the designated beneficiary, D) be paid to any legal heirs as recognized by the annuitant's state of domicile. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. There are also immediate annuities, which begin paying income right away. As with all tax-deferred accounts, municipal bonds are not appropriate investments because interest earned on municipals is already tax exempt at the federal level. Reference: 12.3.1 in the License Exam. For an investor, which of the following is the MOST important factor in determining the suitability of a VA investment? Variable annuities are designed to combat inflation risk. Therefore, variable annuities must be registered with the state insurance commission and the Securities and Exchange Commission. 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. C)Growth mutual funds On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). Cram has partnered with the National Tutoring Association. Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps, Joint and Survivor Annuity: Key Takeaways. Options. Payments from a variable annuity depend on the securities' value in the separate account's underlying investment portfolio. D)partially a tax-free return of capital and partially taxable. Changes in payments on a variable annuity correspond most closely to fluctuations in the: Once a customer annuitizes a variable annuity, which of the following statements are TRUE? D)variable annuities. a variable annuity does not guarantee payments for life. by jmacewe, B)II and III. Reference: 12.1.2 in the License Exam. Life annuity has the largest payout because less risk is assumed by the insurance company; there is no beneficiary in the event the annuitant dies. We also reference original research from other reputable publishers where appropriate. Which of the following recommendations would BEST meet the customer profile? Often used for retirement planning purposes, it is meant to provide a regular (monthly, quarterly, annual) income stream, starting at some point in the future. 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. "Variable Annuities: What You Should Know," Page 6. a variable annuity does not guarantee an earnings rate of return. B)I and III. Among annuities, variable annuities differ from fixed annuities, which provide a specific and guaranteed return. No other type of financial product can promise to do this. Which of the following are defined as securities? B)I and II The separate account is used for both variable life insurance and variable annuity investments. Variable Annuities: A Good Retirement Investment? regulated under both securities and insurance laws. vote on proposed changes in investment policy. \hspace{5pt}\text{Capital}&\text{Credit}&&\\ If he wants to purchase an annuity and start receiving payments now, what would you suggest? A lifetime immediate annuity converts an investment into a stream of payments that last until the annuity owner dies. In concept, the payments come from three pockets: The original investment, investment earnings and money from a pool of people in the investors group who do not live as long as actuarial tables forecast. With regard to a variable annuity, all of the following may vary EXCEPT: Your answer, number of annuity units., was correct!. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. Find out how you can intelligently organize your Flashcards. Immediate annuities An immediate annuity is designed to start paying an income one time period after the immediate annuity is bought. B) a VA contract is not required to be sold by prospectus because it is an ins. The number of accumulation units is always fixed throughout the accumulation period. A)I and IV. 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. A client has purchased a nonqualified variable annuity from a commercial insurance company. contract. Fixed Annuity, Retirement Annuities: Know the Pros and Cons. Variable annuity salespeople must register with all of the following EXCEPT: Variable annuity salespeople must be registered with FINRA and the state insurance department. Once a variable annuity has been annuitized: Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. Most variable annuities are structured to offer investors many different fund alternatives. D)I and III. Which of the following statements regarding variable annuities are TRUE? C)with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually "Variable Annuities: What You Should Know," Pages 67. . A client has purchased a nonqualified variable annuity from a commercial insurance company. That can adversely affect your returns over the long term, compared with other types of investments. The annuitized payments are viewed for tax purposes as B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. The number of annuity units rises once annuitization begins. The upside was the possibility of higher returns during the accumulation phase and a larger income during the payout phase. Annuities are complicated products, so that may be easier said than done. Your answer, It will be higher., was correct!. 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. C)Life annuity. 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. Reference: 12.1.2 in the License Exam, Question #23 of 48Question ID: 901858 A)Corporate debt securities Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. Types of Annuities Flashcards by Liliana Benavides | Brainscape Question #11 of 48Question ID: 606816 D)I and II. B)changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. If this client is in the payout phase, how would his April payment compare to his March payment? C)III and IV. Question #12 of 48Question ID: 606814 B)mutual fund units. Immediate annuities are also available in fixed or variable forms. The accumulation unit's value is used to calculate the total value of the account. Question #18 of 48Question ID: 606827 IncreaseDecreaseNormalBalanceBalancesheetaccounts:AssetCreditLiabilityCreditOwnersequity:CapitalCreditDrawingIncomestatementsaccounts:RevenueCredit(j)ExpenseCreditDebit\begin{array}{lccc} 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. A variable annuity is both an insurance and a securities product. Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both ins. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. Only variable annuities have payout plans that provide the client income for life. All of the following are characteristics of a variable annuity, except 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. A customer has a nonqualified variable annuity. A)each annuity unit's value and the number of annuity units vary with time. Distribution of dividends occurs during the accumulation period. How is the distribution taxed? The value of the separate account is now $30,000. Your client has $50,000 to invest. The amount that is paid depends on the age of the annuitant (or ages, if its a two-life annuity), the amount paid into the annuity, and (if its a fixed annuity) an interest rate that the insurance company believes it can support for the length of the expected payout period. They are also riddled with fees, which can cut into profits. It may decrease in value. \hspace{5pt}\text{Asset}&&\text{Credit}&\\ Under the terms of the plan, money paid into the annuity is not included in taxable income for the year in which it is paid. The separate account is NOT likely to invest in: Your answer, municipal bonds., was correct!. The time period depends on how often the income is to be paid. The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. Variable annuities are regulated by state insurance departments and the federal Securities and Exchange Commission. Azanswer team is here with the correct answer to your question. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. All of the following are characteristics of variable whole life EXCEPT. The # of annuity units is fixed at the time of annuitization, 4. do not have a separate account \hspace{5pt}\text{Liability}&\text{Credit}&&\\ D)the state insurance department. Find out how you can intelligently organize your Flashcards. 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. can be sold by someone with only an insurance license D. Value of each annuity unit each month. This factor is used to establish the dollar amount of the first annuity payment. the VA recommendation would not be suitable. Here is how guaranteed lifetime annuities work. 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. A VA does not guarantee an earnings rate because earnings will depend on the performance of the separate account. A)II and IV. B)FINRA. Based only on these facts, the variable annuity recommendation is 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. D)all return of cost basis and nontaxable, Annuitized payments from a variable annuity are viewed for tax purposes as part earnings and part cost basis. the state insurance commission. Reference: 12.3.3 in the License Exam, Question #34 of 48Question ID: 606834 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. Question #32 of 48Question ID: 606815 co. will have to continue payments longer than expected. SIE Final #2 Flashcards | Quizlet A universal variable life policy should be purchased primarily for its insurance features, not its investment features. 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!. 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. Contributions to a nonqualified annuity are made with the owner's after-tax dollars.