D) the payout plans provide the client income for life. Classifying annuities There are many categories of annuities. In a variable annuity contract, the provision that guarantees the annuitant payments for life is called the: D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. An accumulation unit in a variable annuity contract is: A)an accounting measure used to determine the contract owner's interest in the separate account. C)Money market fund. . FINRA. 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. B) 100% taxable. D)I and III. B) single payment deferred annuity. Which 2 of the 4 client profiles would a VA be LEAST suitable for? B) payment guarantee. Question #41 of 48Question ID: 606801 If you die before the payout phase, your beneficiaries may receive a. savingsbondsGroupinsurance$198,74451,71415,21030,42045,630$341,718, Tax rates assumed: The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. C)III and IV. D)suggest to the client that perhaps a loan or refinancing his vacation home might be a better way to fund the contract purchase. What is the annual cash flow generated from the new machine? C)suitable due to the death benefit features of a variable annuity. Needs - are goal-directed forces that people experience. How Good of a Deal Is an Indexed Annuity? C) annuity units. Nicks Enterprises has purchased a new machine tool that will allow the company to improve the efficiency of its operations. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. IV. *Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. D) A 50 year old individual with $50,000 cash to invest who has already made the maximum contributions to an IRA and the 401(k) plan at his place of employment and would like to minimize some of the tax consequences of his currently high tax bracket. B) II and III C) II and III. B) II and IV. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? Which of the following recommendations would best meet the customer profile? Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. B) The entire $10,000 is taxable as ordinary income. C) II and III. Fixed Annuity, Retirement Annuities: Know the Pros and Cons. Accumulation Period of Fixed Annuities During this period, premiums are credited with interest which accumulates on a yearly basis. e) Are From the United States and Log on every day independently? A) III and IV. D) I and II. When the annuitization option is selected, each payment represents both capital and earnings. The growth portion is taxed as a capital gain. B) 0. Securely download your document with other editable templates, any time, with PDFfiller. Variable annuities are designed to combat inflation risk. Determine the revenue equation given the profit and expense equations. All of the following statements about variable annuities are true EXCEPT: 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. A)value of underlying securities held in the separate account. 111. D)Municipal bonds. An investor who has purchased a nonqualified variable annuity has the right to: Variable annuities must be registered with: All of the following statements concerning a variable annuity are correct EXCEPT: D) variable annuities will protect an investor against capital loss. C)II 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. Suppose that 20%20 \%20% of their users are United States users who log on daily. Determine whether the following events are independent or dependent. A 10% penalty applies only if distributions begin before age 59-. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. 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. Expert Answer. Variable annuity salespeople must be registered with FINRA and the state insurance department. Your 65-year-old client owns a nonqualified variable annuity. 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. The remainder of the premium is invested in the separate account. Therefore, ordinary income taxes will apply to the entire $10,000. B) accumulation units. Reference: 12.1.4 in the License Exam. The nature of the securities invested in-bonds and growth stocks-makes it necessary that sales representatives and their principals be licensed in securities as well as insurance. I. C)It will be higher. Surrender fees and penalties for early withdrawal. Deal with mathematic Math is all about solving equations and finding the right answer. As with all tax-deferred accounts, municipal bonds are not appropriate investments because interest earned on municipals is already tax exempt at the federal level. Reference: 12.2.1 in the License Exam. B) the safety of the principal invested. An accumulation unit in a variable annuity contract is: For this potential advantage, the investor, rather than the insurance company, assumes the investment risk. If the owner of a variable annuity dies during the accumulation period, any death benefit will: D)Investment risk. That can adversely affect your returns over the long term, compared with other types of investments. C) III and IV. Reference: 12.3.3 in the License Exam. Reference: 12.1.4.1 in the License Exam. *Waiver of premium is a benefit available on qualified life insurance contracts, usually in the form of a rider, which provides for the waiver of premium payments that fall due while the policyholder is totally disabled. *During the payout period, payments are based on a fixed number of annuity units established when the contract was annuitized. must be filed with FINRA. Immediate annuities purchase annuity units directly. He wants to ensure that the client, in addition to meeting suitability requirements, is aware of certain variable annuity contract characteristics. C) none of these. B) the state insurance department. D) each annuity unit's value varies with time, but the number of annuity units is fixed. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. Reference: 12.1.4.1 in the License Exam. Prudential's businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, asset management, and real estate services. A)IPO. A)Purchasing power risk. One of the following would achieve that objective but a suitability discussion regarding it's risk should also occur. have investment risk that is assumed by the investor The annuity unit's value represents a guaranteed return. IV. What will this transaction provide? A)exempt from taxes Reference: 12.1.2 in the License Exam. D) 4200. the agent must be licensed in both insurance and securities. While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount. A) Age 56, available cash to invest, makes the maximum retirement plan contributions to an existing IRA and 401(k) plan C) III and IV Spartan Technology Services and Solutions Private Limited is a subsidiary of IBM (International Business Machines) Corporation. B. When money is deposited into the annuity, it is purchasing accumulation units. C)the SEC. C) 3800. Reference: 12.1.2 in the License Exam. Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. (primary needs). a variable annuity does not guarantee an earnings rate of return. 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. && \hspace{10pt}\text{Group insurance} & \underline{45,630}\\ Annuities: How to Find the Right One for You, How a Fixed Annuity Works After Retirement, Pros and Cons of Indexed Universal Life Insurance. A customer has a nonqualified variable annuity. C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. B) A 30 year old construction worker recently unemployed who wants to invest his severance pay amounting to 9 months salary. Anthony Battle is a CERTIFIED FINANCIAL PLANNER professional. C) I and IV. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. Question #44 of 48Question ID: 606797 If an insurance holder dies sooner than expected, the insurance company will have to pay the death benefit sooner. A) I and II Among annuities, variable annuities differ from fixed annuities, which provide a specific and guaranteed return. What is the taxable consequence of this withdrawal to your client? D) reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. An accumulation unit in a variable annuity contract is: B) The policyowner. Universal variable life policies Question #35 of 48Question ID: 606810 A) Fixed annuities. *Under the mortality guarantee, the insurance company assumes mortality risk by guaranteeing payments for life, though the amount of each payment is not guaranteed. An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are. While a variable annuity has the benefit of tax-deferred growth, its annual expenses are likely to be much higher than the expenses of a typical mutual fund. The value of a variable annuity is based on the performance of an underlying portfolio of sub accounts selected by the annuity owner. vote on proposed changes in investment policy. 's dividend yield was % last year. B) I and IV. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. A) number of annuity units. Reference: 12.1.2 in the License Exam. You can learn more about the standards we follow in producing accurate, unbiased content in our. A)not suitable The annuitized payments are viewed for tax purposes as A variable annuity's separate account is: A separate account will invest in a number of different securities. A) a minimum rate of return is guaranteed. A) Any tax due is deferred. Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. A) 2800. Herpes Zoster has all of the following characteristics except: Group of answer choices. Therefore, ordinary income taxes will apply to the entire $10,000. What is her total tax liability? A) Ordinary income tax on earnings exceeding basis. *Accumulation units represent units of ownership in a life insurance company's separate account when the contract is in the accumulation stage. 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. Variable annuities involve underlying equity investments in a separate account. 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. A) Dow Jones Industrial Average. In March, the actual net return to the separate account was 8%. In the case of deferred annuities, this is often referred to as the accumulation phase. D) I and IV C) Life annuity with period certain. The correct answer was: partially a tax-free return of capital and partially taxable. A)number of annuity units. 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. Question #46 of 48Question ID: 606796 B)Variable annuities. Once annuitized, the number of annuity units does not vary. *A variable annuity is a security and must be registered with the SEC, not FINRA. A) I and II. D) Variable annuities. B) 0. A) I and IV. A) a minimum rate of return is guaranteed. B)a minimum rate of return is guaranteed. D) Any time before the accumulation period. 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. The tax on this is $2,800 ($10,000 x 28%). Can I Borrow from My Annuity for a House Down Payment? 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. D)separate account may consist of mutual funds. In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. Changes in payments on a variable annuity correspond most closely to fluctuations in the: Contributions to a nonqualified variable annuity are not tax deductible. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. 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. With regard to a variable annuity, all of the following may vary EXCEPT: A) The fact that the annuity payment may increase or decrease. The accumulation period of a variable annuity may continue for many years. However, it does guarantee payments for life (mortality). D)accumulation units. Sample problems from Chapter 9. . A)unsuitable because the return on something as conservative as a variable annuity tends to be low. The client agrees to purchase the contract and informs the RR that he will be cashing out a VA he purchased 2 years ago to fund the new contract and will forward the check as soon as he receives it. She may choose to receive monthly payments for the rest of her life. II. C) II and III. Question: The following are characteristics of a public conglomerate: I) It is designed to operate various divisions for the long run. When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). Question #12 of 48Question ID: 606814 the state banking commission. In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. C)Growth mutual funds C) I and III. Annuity units are units of ownership when the contract is in the payout stage. C) each annuity unit's value and the number of annuity units vary with time. A variable annuity has two phases: an accumulation phase and a payout (annuitization) phase. D)Joint and last survivor annuity. Do homework Doing homework can help you learn and understand the material covered in class. regulated under both securities and insurance laws. This factor is used to establish the dollar amount of the first annuity payment. IBM is a global brand and has its presence in 170 countries and operates . used to escrow late or otherwise delinquent premium payments. C) II and IV 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, Present Value Interest Factor of Annuity (PVIFA) Formula, Tables. A) two people are covered and payments continue until the second death. B) The investor's marital status. *The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. When the annuitization option is selected, each payment represents both capital and earnings. D)I and IV. A)an accounting measure used to determine the contract owner's interest in the separate account. The amount of the purchase payments that go into the account may be less than you paid because fees were taken out of the purchase payments. Describe. D) The fact that periodic payments into the contract may increase or decrease. C) There is no tax as the withdrawal is considered return of capital. D)II and IV. Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. C) 3000. A customer, who has contributed to an IRA and to an employer matching 401(k) plan continuously for many years, wants to purchase an annuity contract to add additional monthly income once retired. \text{Salaries:} && \text{Deductions:}\\ The holder of a variable annuity receives the largest monthly payments under which of the following payout options? A. Reference: 12.1.2.1.2 in the License Exam. approve changes in the plan portfolio. An annuitant assumes the investment risk of a variable annuity and is not protected by the insurance company from capital losses. \hspace{7pt} b. January 444, to record the employers payroll taxes on the payroll to be paid on January 444. Immediate life annuity with 10-year period certain. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. The owner of a variable annuity has all of the following rights EXCEPT the right to vote: a. for the Board of Trustees b. to change the separate account's investment objective c. for distributing income and capital gains d. for dissolutions of the trust for distributing income and capital gains. 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. I. D) A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. An investor owning which of the following variable annuity contracts would hold accumulation units? However, the web version (cat. Of the four client profiles below which might be the best suited for a variable annuity recommendation? Distributions from such an annuity are computed on a LIFO basis with the income taxed first. C)The entire $10,000 is taxable as ordinary income. B)reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. A) defined contribution plans. The growth portion is taxed as ordinary income. Try The accumulation unit's value is used to calculate the total value of the account. Which of the following is characteristic of variable annuities? The offers that appear in this table are from partnerships from which Investopedia receives compensation. \hspace{7pt} a. December 303030, to record the payroll. (Check all that apply.) D)Dow Jones Industrial Average. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. B)I and III. C)II and III. B) taxed as ordinary income. Though there is no beneficiary designation during the annuitization, this is not an issue for this annuitant. B) variable annuities are classified as insurance products. C) value of underlying securities held in the separate account.
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