the following are all characteristics of variable annuities except:

"Variable Annuities: What You Should Know," Page 6. In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. a life insurance holder lives longer than expected. As the name implies, the investment performance of a variable annuity's portfolio (separate account) can vary, and the investor bears the risk of any potential decline in its value. The earnings on dollars invested into a variable annuity accumulate tax deferred, which is why variable annuities are popular products for retirement accumulation. Question #43 of 48Question ID: 606809 Variable annuities are designed to combat inflation risk. You can learn more about the standards we follow in producing accurate, unbiased content in our. Are There Penalties for Withdrawing Money From Annuities? Many annuity companies offer a variety of investment options. D)II and III. A security is any investment for profit with management performed by a third party. Changes in payments on a variable annuity correspond most closely to fluctuations in the: A)defined contribution plans. Question #24 of 48Question ID: 606806 &\textbf{Increase}&\textbf{Decrease}&\textbf{Normal Balance}\\ This customer has no spouse or dependents, which negates the value of the death benefit. There are many categories of annuities. "Variable Annuities: What You Should Know," Pages 67. In recent years, annuity companies have created various types of floors that limit the extent of investment decline from an increasing reference point. 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. D)Municipal bonds. 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. The payout compared to last month's payout. Question #27 of 48Question ID: 606818 A)each annuity unit's value and the number of annuity units vary with time. audio not yet available for this language, {"cdnAssetsUrl":"","site_dot_caption":"Cram.com","premium_user":false,"premium_set":false,"payreferer":"clone_set","payreferer_set_title":"Variable Annuities","payreferer_url":"\/flashcards\/copy\/variable-annuities-5097323","isGuest":true,"ga_id":"UA-272909-1","facebook":{"clientId":"363499237066029","version":"v12.0","language":"en_US"}}. We also reference original research from other reputable publishers where appropriate. There is no beneficiary in the event the annuitant dies. This factor is used to establish the dollar amount of the first annuity payment. Is required by the Securities Act of 1933, 4. \text{Income statements accounts:}&&&\\ Question #41 of 48Question ID: 606801 D)Any tax due is deferred. Reference: 12.3.1 in the License Exam. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. Cram has partnered with the National Tutoring Association. 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. Annuities are financial products intended to enhance retirement security. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. Variable annuities gave buyers a chance to benefit from rising markets by investing in a menu of mutual funds offered by the insurer. B)Tax-free municipal bonds For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? The payout compared to the initial payout upon annuitization. Brainstorm a list of criteria by which you would select and prioritize projects. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. A)the number of annuity units becomes fixed when the contract is annuitized. How Good of a Deal Is an Indexed Annuity? Reference: 12.2.1 in the License Exam. If you die before the payout phase, your beneficiaries may receive a. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. C)III and IV. The downside was that the buyer was exposed to market risk, which could result in losses. D)the state insurance department. His objective is monthly income that he can receive after he retires to supplement his small pension and Soc Sec benefits. can be sold by someone with only an insurance license 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!. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: Your answer, changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices., was correct!. Compound Accreted Value (CAV) of a municipal bond is used as the starting point in determining the value of a zero coupon bond. withdraw funds without any tax consequences. 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. Her intent was to use the funds for the down payment on a house after graduation. This compensation may impact how and where listings appear. Annuities are complicated products, so that may be easier said than done. 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 # of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. 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. Distributions to the annuitant will fluctuate during the payout period. A)not suitable by jmacewe, Reference: 12.1.2 in the License Exam, Question #23 of 48Question ID: 901858 Annuity death benefits are generally paid in a lump sum. The largest monthly check an annuitant can receive for the rest of his life is generated by a straight life (life income or life only) payout option. The time period depends on how often the income is to be paid. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. The number of accumulation units can rise during the accumulation period. Most annuities will not allow you to withdraw additional funds from the account once the payout phase has begun. B)I and III. C)Variable annuity contract with a discussion regarding interest rate risk 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. features they offer rather than as an investment. B) the state insurance department. Qualified Longevity Annuity Contract (QLAC): Definition, Taxes, and Example, Present Value of an Annuity: Meaning, Formula, and Example, Future Value of an Annuity: What Is It, Formula, and Calculation, Calculating Present and Future Value of Annuities, Annuity Table: Overview, Examples, and Formulas, Present Value Interest Factor of Annuity (PVIFA) Formula, Tables. Investopedia does not include all offers available in the marketplace. Reference: 12.3.3 in the License Exam. holder dies sooner than expected. The accumulation unit's value is used to calculate the total value of the account. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. Once annuitized, the number of annuity units does not vary. Variable annuity salespeople must register with all of the following EXCEPT: Your answer, the state banking commission., was correct!. D)I and III. B)4200. B)corporate stock. C. variable annuities are classified as insurance products. Must precede every sales presentation. These contracts cover both lives and will continue to make payments until the last spouse dies. D)each annuity unit's value is fixed, but the number of annuity units varies with time. Surrender fees and penalties for early withdrawal. d. Deferred annuities A deferred annuity is designed to collect premiums and accrue investment income over an extended period for payout at a later timefor example, when an individual retires. D) The investment risk is shared between the insurance company and the policyowner. withdraw funds without any tax consequences. B)Fixed annuity contract with a discussion regarding timing risk The entire amount is taxed as ordinary income. Find out how you can intelligently organize your Flashcards. can be sold by someone with an insurance license only. Deferred Annuity Definition, Types, How They Work, What Is a Fixed Annuity? Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. Lifetime annuities A lifetime annuity provides income for the remaining life of a person (called the annuitant). C)I and IV. the VA recommendation would not be suitable. IncreaseDecreaseNormalBalanceBalancesheetaccounts:AssetCreditLiabilityCreditOwnersequity:CapitalCreditDrawingIncomestatementsaccounts:RevenueCredit(j)ExpenseCreditDebit\begin{array}{lccc} First, they are complicated, as insurers use different methods to calculate the index return. C)Mortality risk. 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. U.S. Securities and Exchange Commission. On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). B)Universal variable life policy. 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. C)I and IV. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. Reference: 12.1.2.1.1. in the License Exam. In general, annuities have the following features. The separate account is NOT likely to invest in: 4. A guaranteed period commits the insurance company to continue payments after the owner dies to one or more designated beneficiaries; the payments continue to the end of the stated guaranteed periodusually 10 or 20 years (measured from when the owner started receiving the annuity payments). Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. The accumulation unit's value is used to calculate the total value of the account. All of the following are characteristics of a variable annuity, except. When the annuitization option is selected, each payment represents both capital and earnings. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59 1/2. An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. If he wants to purchase an annuity and start receiving payments now, what would you suggest? Variable Annuitization is an annuity option where income payments received by the policyholder vary based on the investment performance of the annuity. 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. co. will have to continue payments longer than expected. 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. Question #42 of 48Question ID: 606830 Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. 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). Required fields are marked *. If you need to withdraw money from the account because of a financial emergency, you may face surrender fees. D)Joint and last survivor annuity. For example, an individual might buy a nonqualified single premium deferred variable annuity. Your client has $50,000 to invest. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. He originally invested $29,000 4 years ago; it now has a value of $39,000. Once the contract is annuitized, monthly payments to the customer are: B)fixed in value until the holder retires. C)Corporate bonds. Generally, a life only contract pays the most per month because payments cease at the annuitant's death. A)unsuitable because the return on something as conservative as a variable annuity tends to be low. 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!. These contracts come with high surrender charges. A)II and IV. 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. Premiums made into the annuity purchase accumulation units. contract. Variable annuities should be considered long-term investments due to the limitations on withdrawals. Question #35 of 48Question ID: 606810 The most popular type of variable annuity is a deferred annuity. Reference: 12.1.2 in the License Exam. Question #19 of 48Question ID: 606826 Which of the following statements regarding variable annuities are TRUE? Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? used for the investment of funds paid by contract holders. 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 . Reference: 12.1.1 in the License Exam. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs. The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. A VA is a security & must be registered with the SEC, not FINRA. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: A)II and III. Life annuity has the largest payout because less risk is assumed by the insurance company. C)II and III. D) Mutual Fund portfolio consisting of blue chip stocks. Introducing Cram Folders! These include white papers, government data, original reporting, and interviews with industry experts. regulated under both securities and insurance laws. 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. Thanks for choosing us. All of the following statements regarding variable annuities are true EXCEPT: A. variable annuities may only be sold by registered representatives. C)100% tax deferred. 7. C) The entire $10,000 is taxable as ordinary income. Fixed annuities. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. Deferred annuities A deferred annuity is designed to collect premiums and accrue investment income over an extended period for payout at a later timefor example, when an individual retires. \hspace{5pt}\text{Drawing}&&&\\ A variable annuity is both an insurance and a securities product. A customer has a nonqualified variable annuity. We'll bring you back here when you are done. Question #45 of 48Question ID: 606795 When the second party dies, all payments cease. a variable annuity guarantees payments for life. Your email address will not be published. Reference: 12.3.2.4 in the License Exam. Variable annuities were introduced in the 1950s as an alternative to fixed annuities, which offer a guaranteedbut often lowpayout during the annuitization phase. If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? However, a discussion should occur regarding the risks that are associated with a fixed annuity; purchasing power risk. B)Life annuity with period certain. c. The separate account provides for a guaranteed minimum return. Life Insurance vs. Annuity: What's the Difference? Variable annuity contracts were devised to help investors keep pace with inflation. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. Each of the remaining statements are true. C)prime rate. What Are the Biggest Disadvantages of Annuities? they have all the same characteristics as life insurance An Immediate Annuity is designed to provide each of the following features, EXCEPT: The creation of an estate Your client has a large sum of money to invest from the proceeds of the sale of his home. Investopedia requires writers to use primary sources to support their work. They can be classified by: An annuity can be classified in several of these categories at once. Based on the client's profile, which of the following would be the best recommendation? If a 42-year-old customer has been depositing money in a variable annuity for 5 years, and he plans to stop investing but has no intention of withdrawing any funds for at least 20 years, he is holding: Her intent was to use the funds for the down payment on a house after graduation. A)exempt from taxes For a retired person, which of the following investments would provide the greatest protection against inflation? The number of accumulation units can rise during the accumulation period. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). Her agent recommended she choose a variable annuity as a safe haven for the funds. Funding a VA contract by cashing out either life insurance policies or existing VA contracts, especially those held for a short period of time is not suitable. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. A)value of underlying securities held in the separate account. The # of accumulation units can rise during the accumulation period, 3. 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. Question #47 of 48Question ID: 606813 Based only on these facts, the variable annuity recommendation is C)such an annuity is designed to combat inflation risk. For a retired person, which of the following investments would provide the greatest protection against inflation? The funds in an annuity are off-limits to creditors and other debt collectors. is required by the Securities Act of 1933. D)variable annuities offer the investor protection against capital loss. If an ins. C)III and IV. Pretend you are on the leadership team of a manufacturing company that is currently challenged by low-cost competition. 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. How a Fixed Annuity Works After Retirement. The growth portion is taxed as a capital gain. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. 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!. The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. B) Any tax due is deferred. Options. You have created 2 folders. Variable annuity salespeople must register with all of the following EXCEPT: Variable annuity salespeople must be registered with FINRA and the state insurance department. For each of the items (a) A life annuity is an insurance product that features a predetermined periodic payout amount until the death of the annuitant. are purchased primarily for their insurance features All of the following statements about variable annuities are true EXCEPT: A) a minimum rate of return is guaranteed. 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. B)II and III. Why Is It Important To Have Your Financial Plan And Goals In Place When Considering Investments? D)variable annuities. C)annuity units. Fixed Annuity, Retirement Annuities: Know the Pros and Cons. Question #29 of 48Question ID: 606831 A)III and IV. used to escrow late or otherwise delinquent premium payments. A variable annuity's separate account is: The separate account is used for both variable life insurance and variable annuity investments. Explaining What have been the major population changes since the first census in 1790? C. variable annuities will protect an investor against capital loss. C)The entire $10,000 is taxable as ordinary income. D)I and IV. 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. B)a majority vote from the shareholders is required to change the investment objectives. Please upgrade to Cram Premium to create hundreds of folders! Add to folder Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies. C) a VA contract does not guarantee any type of return. The remainder of the premium is invested in the separate account. Therefore, variable annuities must be registered with the state insurance commission and the SEC. D)suitable due to the relative safety of the investment. The fund has a particular investment objective, and the value of the money in a variable annuityand the amount of money to be paid outis determined by the investment performance (net of expenses) of that fund. With regard to a variable annuity, all of the following may vary EXCEPT: Question #46 of 48Question ID: 606796
Affirmations Meme Maker, Fantasy Premier League Names 2021, 1979 Puerto Rico Basketball Team Roster, Lady Violet Bridgerton Accent, Fire Hydrant Parking Rule Washington State, Articles T