Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps, Joint and Survivor Annuity: Key Takeaways. Your email address will not be published. C)Mortality risk. The # of annuity units is fixed at the time of annuitization, 4. Your customer in his early 30s has received a modest inheritance from a relative. C)Life annuity. C) The entire amount is taxed as ordinary income, because it is not life insurance. Which of the following are defined as securities? D) There is no tax as the withdrawal is considered return of capital. Many investments are taxed year by year, but the investment earningscapital gains and investment incomein annuities arent taxable until the investor withdraws money. Reference: 12.1.4.1 in the License Exam. B)I and IV. D)Dow Jones Industrial Average. Second, equity-indexed annuities don't typically include reinvested dividends when calculating index. Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. B)Universal variable life policy. The number of annuity units is fixed at the time of annuitization. D)money market funds. C)the number of annuity units is fixed, and their value remains fixed. GuranteedExamLife Flashcards by Gabriel Martinez | Brainscape D)the rate of return is determined by the underlying portfolio's value. Introducing Cram Folders! can be sold by someone with an insurance license only. All of the following statements about variable annuities are true EXCEPT: A) a minimum rate of return is guaranteed. Your 65-year-old client owns a nonqualified variable annuity. 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. D)I and III. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. A)number of annuity units. An annuity may be purchased under all of the following methods EXCEPT: Your answer, periodic payment immediate annuity., was correct!. This factor is used to establish the dollar amount of the first annuity payment. 6. (The exception is the fixed income annuity, which has a moderate to high payout that rises as the annuitant ages). . For example, individuals can invest in a fixed annuity that credits a specified interest rate, similar to a bank Certificate of Deposit (CD). CDs insured by the FDIC. 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. The offers that appear in this table are from partnerships from which Investopedia receives compensation. D)variable annuities. Variable annuities offer the possibility of higher returns and greater income than fixed annuities, but theres also a risk that the account will fall in value. Immediate life annuity with 10-year period certain. Answer: B Of the 4 customer profiles, the individual already making the maximum retirement account contributions, with cash to invest, would be most suitable for a VA recommendation. But again, the need to designate beneficiaries is not an issue for this annuitant. All of the following are characteristics of variable whole life EXCEPT. A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. If they buy a variable annuity, their money can be invested in stocks, bonds or mutual funds. A registered representative recommends a variable annuity with an income rider to a client. The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. the state banking commission. C)I and IV. Variable annuities are riskier than fixed annuities because the underlying investments may lose value. Fixed annuities are regulated by state insurance departments. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. withdraw funds without any tax consequences. B)I and III. 2003-2023 Chegg Inc. All rights reserved. A)There is no tax as the withdrawal is considered return of capital. Reference: 12.1.1 in the License Exam. The earnings are taxable but the cost basis is returned tax free. 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. Contributions to a nonqualified variable annuity are not tax deductible. 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. 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. The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. Variable annuities grow tax-deferred, so you dont have to pay taxes on any investment gains until you begin receiving income or make a withdrawal. B)4200. An equity indexed annuity is a type of fixed annuity, but looks like a hybrid. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. Variable annuities are designed to combat inflation risk. The payout compared to the initial payout upon annuitization. C)earnings only and taxable Because this is not guaranteed, the policyowner bears the investment risk. approve changes in the plan portfolio.3. His objective is monthly income that he can receive after he retires to supplement his small pension and Soc Sec benefits. 7. You dont have to worry about it anymore. Question #15 of 48Question ID: 606804 The following table summarizes the rules of debit and credit. C)II and IV. As with all tax-deferred accounts, muni bonds are not appropriate investments because interest earned on munis is already tax exempt at the federal level. D)partially a tax-free return of capital and partially taxable. must precede every sales presentation. a. 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. 8. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. \hspace{5pt}\text{Drawing}&&&\\ Her agent recommended she choose a variable annuity as a safe haven for the funds. 4.5 Variable Products Flashcards | Chegg.com As part of the registration requirements, a prospectus must be filed & distributed to prospective investors. What Are the Biggest Disadvantages of Annuities? Value in separate account b. Accumulation units c. Death benefit d. Cash value Variable whole life policies have a guaranteed minimum death benefit. The growth portion is taxed as a capital gain. Future annuity payments will vary according to the separate account's performance. C)The entire $10,000 is taxable as ordinary income. SIE Final #2 Flashcards | Quizlet Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies. Variable annuities are designed to combat inflation risk. approve changes in the plan portfolio. 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. The number of accumulation units can rise during the accumulation period. 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: \end{array} Your answer, It will be higher., was correct!. B) Any tax due is deferred. Investopedia requires writers to use primary sources to support their work. The accumulation period of a variable annuity may continue for many years. Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. However, it does guarantee payments for life (mortality). D)0. vote for the investment adviser. B)a minimum rate of return is guaranteed. 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. Fixed Annuity, Retirement Annuities: Know the Pros and Cons. 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? The annuitized payments are viewed for tax purposes as John is the annuitant in a variable plan, and Sue is the beneficiary. A deferred annuity is an insurance contract that promises to pay the buyer a regular stream of income, or a lump sum, at some date in the future. Compound Accreted Value (CAV) of a municipal bond is used as the starting point in determining the value of a zero coupon bond. She may choose to receive monthly payments for the rest of her life. Reference: 12.3.1 in the License Exam, Question #30 of 48Question ID: 606833 Generally the most that creditors can access is the payments as they are made, since the money the annuity owner gave the insurance company now belongs to the company. Variable annuity salespeople must register with all of the following EXCEPT: Your answer, the state banking commission., was correct!. The value of the separate account is now $30,000. 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. The customer, in the accumulation stage of the annuity, is holding accumulation units. The earnings on dollars invested into a variable annuity accumulate tax deferred, which is why variable annuities are popular products for retirement accumulation. Most variable annuities are structured to offer investors many different fund alternatives. \text{Income statements accounts:}&&&\\ Your answer, waiver of premium, was correct!. Reference: 12.1.4.2 in the License Exam. The following annuities are available in fixed or variable form: 1. "Variable Annuities: What You Should Know," Page 10. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE?
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