Variable annuities are designed to combat inflation risk. A) partially a tax-free return of capital and partially taxable. D) a minimum of 10 years of variable payments, followed by additional variable payments for life When the annuitization option is selected, each payment represents both capital and earnings. Annuity death benefits are generally paid in a lump sum. C)the yield is always higher than bond yields. "Variable Annuities: What You Should Know," Pages 67. The number of accumulation units can rise during the accumulation period. A) waiver of premium Reference: 12.3.3 in the License Exam. D) a minimum of 10 years of variable payments, followed by additional variable payments for life. A)II and III. B) payment guarantee. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. A) Dow Jones Industrial Average. This includes transportation, food, lodging, and entertainment. It's somewhat similar to a variable life insurance policy in that: You can choose how the product's value is invested. 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: D) I and IV. D) Variable annuities. Reference: 12.1.2 in the License Exam. B) The entire $10,000 is taxable as ordinary income. C)The entire $10,000 is taxable as ordinary income. Salaries:SalessalariesWarehousesalariesOfficesalaries$670,000110,000234,000$1,014,000Deductions:IncometaxwithheldSocialsecuritytaxwithheldMedicaretaxwithheldU.S. Based on this information the RR should: IV. What is her total tax liability? B) I and III. III. Annuities are similar to other forms of investing in that the owner invests money with the hope that it will gain in value, but annuities also come with higher fees than most mutual funds. The number of annuity units rises once annuitization begins. C) taxed as ordinary income only to the extent of earnings. Facebook reports that 70%70 \%70% of their users are from outside the United States and that 50%50 \%50% of their users log on to Facebook daily. Travel Times Journal found that the average per person cost of a 10-day trip along the Pacific coast, per person, is $1,015. A) The policy provides a minimum guaranteed death benefit. "Variable Annuities: What You Should Know," Page 6. A) I and III. A) variable annuities offer the investor protection against capital loss. 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. How Good of a Deal Is an Indexed Annuity? The separate account performance compared to last month's performance. 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 About Us 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 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. All of the following statements concerning a variable annuity are correct EXCEPT: B) The investor's marital status. 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. A) partially a tax-free return of capital and partially taxable. Designed to protect against inflation. 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. Most annuities will not allow you to withdraw additional funds from the account once the payout phase has begun. No software installation. Your customer in his early 30s has received a modest inheritance from a relative. D) cost of living. A 45-year-old employed individual with no other retirement accounts in place For this potential advantage, the investor, rather than the insurance company, assumes the investment risk. have investment risk that is assumed by the investor B)part earnings and part cost basis A) The fact that the annuity payment may increase or decrease. B) a variable annuity contract is not required to be sold by prospectus because it is an insurance 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. Guaranteed Lifetime Annuity: How They Work, When They Pay You, This is also generally true of retirement plans. He makes the following four statements, all of which are true EXCEPT Based on the information given in the question, the VA recommendation would not be suitable. Variable annuities operate in similar ways to . Reference: 12.2.1 in the License Exam. Of the total payroll for the last week of the year, $30,000\$30,000$30,000 is subject to unemployment compensation taxes. Home; About. 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. 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) Ordinary income tax on earnings exceeding basis. D)an accounting measure used to determine payments to the owner of the variable annuity. Do whatever you want with a Learn About Annuities and Their Myths - F&G: fill, sign, print and send online instantly. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. D) Capital gains tax on earnings exceeding basis. A Variable Annuity has which of the following characteristics? If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? *The accumulation period of a variable annuity may continue for many years. Variable annuities were introduced in the 1950s as an alternative to fixed annuities, which offer a guaranteedbut often lowpayout during the annuitization phase. The value of accumulation and annuity units varies with the investment performance of the separate account. (primary needs). 6102..55.001) is being updated on an ongoing basis. This guideline has been prepared for use by Federal agencies. Upon John's death during the accumulation period, Sue takes a lump-sum payment. B) payments continue until the death of the primary owner. D) The fact that periodic payments into the contract may increase or decrease. Reference: 12.3.3 in the License Exam. For an insurance company, mortality risk turns out unfavorably if: His objective is monthly income that he can receive after he retires to supplement his small pension and social security benefits. C) During the annuity period. D) the yield is always higher than mortgage yields. A) I and III. Reference: 12.3.1 in the License Exam, Question #30 of 48Question ID: 606833 A client has purchased a nonqualified variable annuity from a commercial insurance company. Sample problems from Chapter 9. . Which of the following is NOT an accurate statement concerning a variable life insurance contract? 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. 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. During the accumulation phase, you make purchase payments. View full document. The remainder of the premium is invested in the separate account. Changes in payments on a variable annuity correspond most closely to fluctuations in the: D) I and III. A) 2800. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will the tax liability to the IRS be? B)each annuity unit's value varies with time, but the number of annuity units is fixed. D)I and II. Investopedia requires writers to use primary sources to support their work. The distribution of questions by topic is not intended to represent the 39) A variable annuity has the following guarantees: [PDF] Understanding your variable annuity UBS Variable annuities are long-term investment vehicles that with these securities as well insurance company and do not apply to the investment An immediate annuity is designed to pay an income one time-period after the immediate annuity is bought. D)accumulation units. For example, when paying rent, the rent payment (PMT) . *Payments from a variable annuity depend on the securities' value in the separate account's underlying investment portfolio. For example, if the income is monthly, the first payment comes one month after the immediate annuity is bought. A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as He makes the following four statements, all of which are true EXCEPT Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. She may choose to receive monthly payments for the rest of her life. All of the following statements regarding variable annuities are true EXCEPT: *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)It cannot be determined until the April return is calculated. B)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. 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) Fixed annuities. The separate account is used for both variable life insurance and variable annuity investments. C) payments continue for a pre-determined period of time.