Lifetime vs. fixed period annuities 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) life income Licensed to sell Variable Annuities in the following state(s): FL, TX . Explain what is meant by positive and negative D)Investment risk. A) waiver of premium D) each annuity unit's value varies with time, but the number of annuity units is fixed. A)IPO. Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Eric W. Noreen, Peter C. Brewer, Ray H Garrison. The annuitized payments are viewed for tax purposes as The entire amount is taxed as ordinary income. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. *The investor has already paid tax on the contributions but the earnings have grown tax-deferred. For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. D) I and III \hspace{7pt} b. January 444, to record the employers payroll taxes on the payroll to be paid on January 444. B) the rate of return is determined by the underlying portfolio's value. *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. A)each annuity unit's value and the number of annuity units vary with time. The client's investment objectives, tax bracket, investment experience and risk tolerance all align well with a VA recommendation. A) partially a tax-free return of capital and partially taxable. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. do not have a separate account A) I and II. These contracts cover both lives and will continue to make payments until the last spouse dies. 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. Suppose that 20%20 \%20% of their users are United States users who log on daily. D)I and IV, Universal variable life policies are insurance company products that should be purchased primarily for the insurance features they offer rather than as an investment. With regard to a variable annuity, all of the following may vary EXCEPT: a. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. A) The policy provides a minimum guaranteed death benefit. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? A 58-year-old individual near retirement who is in good health and anticipates a lengthy retirement *Once a variable annuity is annuitized, the accumulation units are converted into a fixed number of annuity units. B) II and III *When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. The value of these units varies with the performance of the separate account. Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? C) I and III. Variable annuities are designed to combat inflation risk. C) taxed as ordinary income only to the extent of earnings. Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. Early withdrawal is either removal of funds from a fixed-term investment before the maturity date, or the removal of funds from a tax-deferred investment account or retirement savings account before a prescribed time. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. Distribution can take place before or during any solicitation for sale. D) the yield is always higher than mortgage yields. During the accumulation phase, the number of accumulation units will increase as additional money is invested. C)Money market fund. This recommendation is: D) unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. There are also immediate annuities, which begin paying income right away. II. A) I and III. A)100% tax free. *Under the mortality guarantee, the insurance company assumes mortality risk by guaranteeing payments for life, though the amount of each payment is not guaranteed. A variable annuity is just a tax-deferred annuity in which you get to choose how the value of the annuity is invested. I. B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero D) the number of annuity units becomes fixed when the contract is annuitized. D) tax free. B)II and III. Essential Characteristics: A customer is receiving annuitized payments from a variable annuity. \hspace{10pt} \text{Sales salaries} & \$\hspace{5pt} 670,000 & \hspace{10pt} \text{Income tax withheld} & \$198,744\\ C) the client assumes the investment risk. A)contact the issuer of the clients existing VA contract to facilitate the clients surrender of the contract. If this client is in the payout phase, how would his April payment compare to his March payment? A) A 75 year old women, who is a former executive retired for over ten years who wants to preserve as much capital as she can to leave to her two grandchildren. A variable annuity is a long term investment issued by an insurance company that can help you grow your money, take income in retirement and pass on your wealth. *The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. B)part earnings and part cost basis The number of accumulation units is always fixed throughout the accumulation period. A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as used for the investment of funds paid by contract holders. The remainder of the premium is invested in the separate account. Annuity units are units of ownership when the contract is in the payout stage. guarantees payments for a certain period of time. **Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. Policyholders . Classifying annuities There are many categories of annuities. 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. Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? Annuities due are a type of annuity where payments are made at the beginning of each payment period. D)suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract, Based on the information given in the question, the VA recommendation would not be suitable. All of the following are characteristics of a variable annuity, except: a. However, it does guarantee payments for life (mortality). 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. It may be used by nongovernmental . The funds in an annuity are off-limits to creditors and other debt collectors. A 60-year-old individual, nearing retirement who has both IRAs and a 401k in place, is comfortable with market risk associated with the stock market, and has a lump sum in cash available to fund the annuity Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. *Mortality risk- If an annuitant lives longer than expected, the insurance company will have to continue payments longer than expected. She will receive the annuity's entire value in a lump-sum payment. A variable annuity is a long term investment issued by an insurance company that can help you grow your money, take income in retirement and pass on your wealth. A) Life-only annuity Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. variable annuity without paying tax at the time of the transfer. variable An immediate annuity consists of a Single Premium T has an annuity that guarantees an income payment for the rest of his life. Typically, they allow one withdrawal each year during the accumulation phase. B) payment guarantee. Clusters of vesicles in various stages. A client has purchased a nonqualified variable annuity from a commercial insurance company. If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? A) I and III. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). D)the state insurance department. C) I and IV. 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. To comply with Regulation SP, a brokerage firm is required to do all of the following EXCEPT: A) deliver an annual notice of its information collecting and sharing policies to all customers. D) minimum guaranteed death benefit. A)Fixed annuities. How Good of a Deal Is an Indexed Annuity? The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. 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. How to Rollover a Variable Annuity Into an IRA. What percentile is represented by $710? The value of the annuity units is fixed. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. Which of the following are defined as securities? Each of the remaining statements are true. must precede every sales presentation. B) fixed in value until the holder retires. C)none of these. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. He wants to ensure that the client, in addition to meeting suitability requirements, is aware of certain variable annuity contract characteristics. *The accumulation period of a variable annuity may continue for many years. A) a variable annuity contract will provide a fluctuating monthly check upon the annuitization of the contract An Immediate Annuity is designed to provide each of the following features, EXCEPT: The creation of an estate. Once a variable annuity has been annuitized: For example, if the income is monthly, the first payment comes one month after the immediate annuity is bought. C) value of underlying securities held in the separate account. He earned the Chartered Financial Consultant designation for advanced financial planning, the Chartered Life Underwriter designation for advanced insurance specialization, the Accredited Financial Counselor for Financial Counseling and both the Retirement Income Certified Professional, and Certified Retirement Counselor designations for advance retirement planning. Variable annuity salespeople must be registered with FINRA and the state insurance department. *An immediate annuity has no accumulation period. Question #44 of 48Question ID: 606797 C)100% tax deferred. c. The separate account provides for a guaranteed minimum return. national origin, genetics, disability, age, veteran status, or any other characteristic protected by law. The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. Nicks Enterprises has purchased a new machine tool that will allow the company to improve the efficiency of its operations. D)suggest to the client that perhaps a loan or refinancing his vacation home might be a better way to fund the contract purchase. B)cost of living. C)III and IV. B) a variable annuity contract is not required to be sold by prospectus because it is an insurance contract Investopedia requires writers to use primary sources to support their work. B) The investor's marital status. *A variable annuity is a security and must be registered with the SEC, not FINRA. \hspace{10pt} State unemployment (employer only), 3.8%3.8\%3.8% It is innate and universal. A 45-year-old employed individual with no other retirement accounts in place A) I and II. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. Question #46 of 48Question ID: 606796 *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. Variable annuities are designed to combat inflation risk. A guaranteed death benefit guarantees that the beneficiary will receive a death benefit if the annuitant dies before the annuity begins paying benefits. B) the client may vote for the board of directors or board of managers. The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. How Are Nonqualified Variable Annuities Taxed? When the annuitization option is selected, each payment represents both capital and earnings. Final answer. The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. What is the annual cash flow generated from the new machine? Underlying equity investments T, age 70, withdraws cash from a profit-sharing plan and purchases a Straight Life Annuity. A) mutual fund units. A single lump-sum investment is made, and payments begin immediately, since the investor has purchased annuity units. Because this is not guaranteed, the policyowner bears the investment risk. Supplemental income stream for retirement, not preservation of capital should be the catalyst to consider a VA and for anyone who may need access to the sum invested for any reason a VA would not be considered a suitable recommendation. MetLife offers a comprehensive benefits program, including healthcare benefits, life insurance, retirement benefits, parental leave, legal plan services and paid time off. Variable annuity Which of the following is characteristic of fixed annuities? D)variable annuities offer the investor protection against capital loss. In this case, the investor is taking a lump-sum distribution before reaching age 59- and must pay an additional 10% penalty on the taxable amount. B) II and IV. D) 100% tax deferred. A registered representative recommends a variable annuity with an income rider to a client. They offer broad diversification in the securities market and potential growth, all while using the power of tax deferral. *The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. C) 10 years of variable payments. Reference: 12.1.2 in the License Exam, Question #21 of 48Question ID: 606812 Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. Reference: 12.2.1 in the License Exam, Question #48 of 48Question ID: 606835 An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are. B) accumulation units. C) number of accumulation units. Your 65-year-old client owns a nonqualified variable annuity. U.S. Securities and Exchange Commission. C)Keogh plans. Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? *The most important consideration in purchasing a variable annuity is to be aware that benefit payments will fluctuate with the investment performance of the separate account. Over the following year, the stock fund has a 10% return, and the bond fund has a 5% return. The number of annuity units rises once annuitization begins. 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. A)number of annuity units. must provide full and fair disclosure. D) a variable annuity contract is subject to fluctuating values due to market fluctuations of the underlying separate accounts. "Variable Annuities: What You Should Know," Page 6. Instructions\textsf{\textcolor{#4257b2}{Instructions}}Instructions Annuities are complicated products, so that may be easier said than done. The value of the annuity units varies. His objective is monthly income that he can receive after he retires to supplement his small pension and social security benefits. a life insurance holder dies sooner than expected. Question #31 of 48Question ID: 606836 By clicking Accept All Cookies, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. A)Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. 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. Reference: 12.1.2 in the License Exam, Question #23 of 48Question ID: 901858 A variable annuity's separate account is: A) used for the investment of monies paid by variable annuity contract holders B) separate from the insurance company's general investments C) operated in a manner similar to an investment company D) as much a security as it is an insurance product All of the above Generally, a life-only contract pays the most per month because payments cease at the annuitant's death. Following the transition to T+1 in the U.S. markets, Commission staff will continue to work with industry leaders, public interest advocates, investors and other regulators to assess the future feasibility of a T+0 settlement standard cycle, and seek to identify ways to overcome the challenges associated with such a move, as articulated in the . A) Ordinary income tax on earnings exceeding basis. John is the annuitant in a variable plan, and Sue is the beneficiary. B) 10% penalty plus payment of ordinary income tax on all funds withdrawn. An accumulation unit in a variable annuity contract is: The following information about the payroll for the week ended December 303030 was obtained from the records of Vienna Co.: Salaries:Deductions:Salessalaries$670,000Incometaxwithheld$198,744Warehousesalaries110,000Socialsecuritytaxwithheld51,714Officesalaries234,000Medicaretaxwithheld15,210$1,014,000U.S. A)an accounting measure used to determine the contract owner's interest in the separate account. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. C) single payment immediate annuity. The client's investment objectives, tax bracket, investment experience and risk tolerance all align well with a VA recommendation. A registered representative's (RR) customer is speaking of a variable life insurance contract he owns. D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. D) III and IV. All of the following statements about variable annuities are true EXCEPT: required to be located off of the company's premises. 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. Reference: 12.3.1 in the License Exam. Can I Borrow from My Annuity for a House Down Payment? An annuity is an insurance product that promises to pay out income at a future date based on invested funds. D) Any time before the accumulation period. Though there is no beneficiary designation during the annuitization, this is not an issue for this annuitant. The annuity unit's value represents a guaranteed return. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. C)annuity units. P=525p2+65,326p185,000E=326p+185,000P=-525 p^{2}+65,326 p-185,000 \quad E=-326 p+185,000P=525p2+65,326p185,000E=326p+185,000. Surrender fees and penalties for early withdrawal. D)Joint and last survivor annuity. A 1 The applicant and possibly the agent initial any changes made. B)I and III. B) II and III. VAs, blue chip mutual fund portfolios, ETFs and 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. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. 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. II. Reference: 12.3.1 in the License Exam. B) II and IV. A. is required by the Securities Act of 1933. The company's well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. B) The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. Your client owns a variable annuity contract with an AIR of 4%. A)II and III. B)reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. A)There is no tax as the withdrawal is considered return of capital. 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. An individual who purchases a Life annuity is given protection against: the risk of living longer than expected The type of annuity that can be purchased with one monetary deposit is called a (n) Immediate annuity N purchases an annuity by making payments in an amount no less than $100 quarterly. Needs - are goal-directed forces that people experience. 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 fixed annuity is an insurance contract that pays a guaranteed rate of interest on the owner's contributions and later provides a guaranteed income. B)value of annuity units. Post navigation *Variable annuity 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 and the Investment Company Act of 1940. 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. A joint-and-last-survivor annuity is a payout option where: All of the following are characteristics of Variable Annuity contracts EXCEPT The possibility of higher returns and greater income than fixed annuities, but there's also a risk that the account will fall in value A There are no surrender fees B Guaranteed death benefit C Tax deferred growth D Training Explanations Question #35 of 48Question ID: 606810 If the separate account of a variable annuity with an AIR of 4% had actual net earnings of 8% in March, the April payment will be higher than the March payment. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. A) The fact that the annuity payment may increase or decrease. It is the starting point of motivation because they generate emotions. D) The investment risk is shared between the insurance company and the policyowner. D) II and IV. A separate account will invest in a number of different securities. D) a minimum of 10 years of variable payments, followed by additional variable payments for life. D) a minimum of 10 years of variable payments, followed by additional variable payments for life B) variable annuities. C) suitable regardless of funding sources A) I and II a variable annuity does not guarantee an earnings rate of return. Reference: 12.1.2.1.1 in the License Exam. A)Fixed annuity contract with a discussion regarding purchasing power risk B) a variable annuity contract is not required to be sold by prospectus because it is an insurance contract Determine the revenue equation given the profit and expense equations. D) 4500. A variable annuity has two phases: an accumulation phase and a payout (annuitization) phase. Expert Answer. Question #29 of 48Question ID: 606831 *When money is deposited into the annuity, it is purchasing accumulation units. These include white papers, government data, original reporting, and interviews with industry experts. In addition, an element of risk must be present. The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. The growth portion is taxed as ordinary income. B) Life annuity with period certain A)II and IV. The number of accumulation units can rise during the accumulation period. Which is it? The anti-money laundering rules for insurance companies highlight that each insurance company - like other financial institutions subject to anti-money laundering program requirements - must develop a risk-based anti-money laundering program that identifies, assesses, and mitigates any risks of money laundering, terrorist financing, and other C)the number of annuity units is fixed, and their value remains fixed. Once a customer annuitizes a variable annuity, which of the following statements are TRUE? Therefore only a fixed annuity could be considered as suitable. B) The death benefit cannot ever be more than the guaranteed benefit. During payout, distributions will fluctuate due to performance in the separate account. C)the invested money will be professionally managed according to the issuers' investment objectives. B) II and IV. A) 4000. A trend is formed from non-repetitive actions of people. B)a majority vote from the shareholders is required to change the investment objectives. a variable annuity guarantees an earnings rate of return. The fixed annuities, indexed annuities, and variable annuities are some of the major types of annuities, of which one may find immediate annuities and deferred annuities. d. Each month the payment will increase, decrease, or remain the same as the previous month's payment . You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. Question #45 of 48Question ID: 606795 However, if you take a withdrawal during the contractssurrender period, which can be as long as 15 years, youll generally have to pay a surrender fee. On any device & OS. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps. A) two people are covered and payments continue until the second death. Upon John's death during the accumulation period, Sue takes a lump-sum payment. Which Earns More: Variable or Fixed Annuities? Which of the following statements regarding variable annuities are TRUE? A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. Question #19 of 48Question ID: 606826 This chapter was updated on 15 December, 2005. Which of the following statements is not true about the characteristics of a trend? A joint life with last survivor annuity: Distribution of dividends occurs during the accumulation period.