\end{array} 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. \hspace{5pt}\text{Asset}&&\text{Credit}&\\ Variable annuities must be registered with: A client has purchased a nonqualified variable annuity from a commercial insurance company. The entire amount is taxed as ordinary income. C)I and IV. B)4200. B)II and III. With variable annuities, the rate of returnand therefore the value of your investmentmight go up or down depending on the performance of the stock, bond and money market funds that you choose as investment options. In contrast to mutual funds and other investments made with aftertax money, with annuities there are no tax consequences if owners change how their funds are invested. A)contact the issuer of the clients existing VA contract to facilitate the clients surrender of the contract. All of the following statements about variable annuities are true EXCEPT: For this potential advantage, the investor, rather than the ins. A policyholder will make a lump sum payment or a series of payments in exchange for a guaranteed amount of income. If an annuitant lives longer than expected, the ins. No other type of financial product can promise to do this. Are Variable Annuities Subject to Required Minimum Distributions? C)III and IV When a VA contract is annuitized, the # of annuity units is fixed. 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. Variable annuities were introduced in the 1950s as an alternative to fixed annuities, which offer a guaranteedbut often lowpayout during the annuitization phase. D)I and III. From an insurance company, mortality risk turns out unfavorably if: 1. an annuitant lives longer than expected, 2. an annuitant dies sooner than expected, 3. a life ins. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. D)Investment risk. This customer has no spouse or dependents, which negates the value of the death benefit. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. C)with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: Your answer, variable annuities., was correct!. If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? For anyone who may need access to the sum invested at a later time, a VA would not be considered a suitable recommendation. co. will have to pay the death benefit sooner than expected - that is, before receiving some of the expected premium payments. Reference: 12.3.2.4 in the License Exam. The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. In a variable annuity contract, the provision that guarantees the annuitant payments for life is called the: Your answer, mortality guarantee., was correct!. Reference: 12.1.2 in the License Exam. "Variable Annuities: What You Should Know," Page 6. Which Earns More: Variable or Fixed Annuities? The annuity unit's value represents a guaranteed return. The separate account is NOT likely to invest in: Your answer, municipal bonds., was correct!. A lifetime immediate annuity converts an investment into a stream of payments that last until the annuity owner dies. Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs. Your email address will not be published. Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps, Joint and Survivor Annuity: Key Takeaways. Variable annuities should be considered long-term investments due to the limitations on withdrawals. C)I and III. Variable annuity salespeople must be registered with FINRA and the state insurance department. "Variable Annuities: What You Should Know," Page 3. required to be located off of the company's premises. The investor purchased accumulation units. Question #19 of 48Question ID: 606826 Your answer, The entire $10,000 is taxable as ordinary income., was correct!. Reference: 12.1.4.2 in the License Exam. must precede every sales presentation. The number of annuity units rises once annuitization begins. In the case of deferred annuities, this is often referred to as the accumulation phase. The most important consideration in purchasing a VA is to be aware that benefit payments will fluctuate with the investment performance of the separate account. A variable annuity is both an insurance and a securities product. A variable annuity's separate account is: The separate account is used for both variable life insurance and variable annuity investments. Among annuities, variable annuities differ from fixed annuities, which provide a specific and guaranteed return. Future annuity payments will vary according to the separate account's performance. Compound Accreted Value (CAV) of a municipal bond is used as the starting point in determining the value of a zero coupon bond. Variable annuities must be registered with: A prospectus for a variable annuity contract: When may a variable annuity account be surrendered? A security is an investment for profit with management performed by a third party. 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. Variable annuity salespeople must register with all of the following EXCEPT: Variable annuity salespeople must be registered with FINRA and the state insurance department. Your client owns a variable annuity contract with an AIR of 4%. Which of the following are defined as securities? Who assumes the investment risk in a variable annuity contract? 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. The # of annuity units is fixed at the time of annuitization, 4. a variable annuity does not guarantee payments for life. C)none of these. SIE Final #2 Flashcards | Quizlet The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. Variable Annuities Flashcards | Quizlet 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"}}. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. Reference: 12.1.2 in the License Exam. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. CDs insured by the FDIC. 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. 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. do not have a separate account 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. A)II and IV. All of the following are characteristics of a variable annuity, except. 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!. If a customer is about to buy a variable annuity contract and wants to select an annuity with a payout option providing the largest possible monthly payment, which of the following payout options would be MOST suitable? B)each annuity unit's value varies with time, but the number of annuity units is fixed. In addition, an element of risk must be present. 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: Your answer, accumulation units., was correct!. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. B)II and III. An investor who purchases a fixed annuity contract assumes purchasing-power risk. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. 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 . Advantages And Disadvantages Of Adjustable Life, Case Study: Cimb-Principal Asset Management Berhad. Reference: 12.1.2 in the License Exam. Given that all of the current retirement investments are subject to market risk, the customer wants these new funds to have no market risk exposure. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. The accumulation period of a variable annuity may continue for many years. B)FINRA. A)There is no tax as the withdrawal is considered return of capital. \hspace{5pt}\text{Capital}&\text{Credit}&&\\ A)II and IV. The # of accumulation units can rise during the accumulation period, 3. For a retired person, which of the following investments would provide the greatest protection against inflation? Question #29 of 48Question ID: 606831 The remainder of the premium is invested in the separate account. There is no beneficiary in the event the annuitant dies. A)value of underlying securities held in the separate account. Copyright 2023, Insurance Information Institute, Inc. With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. Variable Annuities Flashcards - Cram.com B)I and IV. B)mutual fund units. Premiums made into the annuity purchase accumulation units, c. The separate account provides for a guaranteed minimum return, d. Each month the payment will increase, decrease, or remain the same as the previous months payment based on the actual return as compared to the assumed interest rate (AIR). Your answer, waiver of premium, was correct!. Future annuity payments will vary according to the separate account's performance. Variable annuities offer investors choices among a number of complex contract features and options. A)Fixed annuity contract with a discussion regarding purchasing power risk The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59 1/2. Variable annuity contracts were devised to help investors keep pace with inflation. B)variable annuities are classified as insurance products. Single premium annuities are often funded by rollovers or from the sale of an appreciated asset. Variable annuity salespeople must register with all of the following EXCEPT: Your answer, the state banking commission., was correct!. As part of the registration requirements, a prospectus must be filed & distributed to prospective investors. She will receive the annuity's entire value in a lump-sum payment. The number of accumulation units can rise during the accumulation period. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as. A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. vote for the investment adviser. D)suitable due to the relative safety of the investment. Find out how you can intelligently organize your Flashcards. 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. Therefore, ordinary income taxes will apply to the entire $10,000. A) Investopedia does not include all offers available in the marketplace. Variable annuities are designed to combat inflation risk.
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