Life Insurance: Annuities

What are the two types of refund life annuities?

Cash refund and installment refund

How long will a life annuity with a 15-year period certain pay?

For the life of the annuitant unless the annuitant dies within the first 15 years of the annuitization period; then the payments will last for 15 years.

What is a disadvantage of owning a fixed annuity, as opposed to variable?

In times of inflation, the benefit of a fixed annuity will have decreased purchasing power.

Who bears the investment risk in a fixed annuity?

The insurer

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

Beneficiary

How soon can income payments begin in an immediate annuity?

No later than 1 year from the time of annuity purchase

What type of annuity credits its interest based upon an index such as S&P 500?

Equity indexed annuity

What are the two classifications of annuities according to the time when annuity payments begin?

Immediate and deferred

If an annuity provides a set amount of income for two or more persons with the income ceasing upon the first death, what type of annuity is that?

Joint life annuity

With a single premium deferred annuity, when will the annuity payments become available?

No sooner than 1 year after the annuity purchase

An annuity purchased with multiple payments that begin income payments after one year from the moment of purchase is known as what type of annuity?

Flexible premium deferred annuity

Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?

The annuitant receives payments from the annuity during the annuitization period; the beneficiary receives benefits after the annuitant's death.

What annuity settlement option provides income payments to the annuitant for the duration of their life, and ceases at the annuitant's death?

Pure life

Who possesses all the rights in an annuity?

Annuity owner

What is the main reason for purchasing an annuity?

To provide income that the annuitant cannot outlive

What is the difference between a single premium and a flexible premium payment options in a deferred annuity?

The number of payments that purchase the annuity

What are accumulation units in annuities?

Ownership interest in the separate account (instead of buying shares, annuity holder purchases accumulation units)

What are the two phases of an annuity?

Accumulation and annuitization (or pay-in and pay-out)

An individual has a contract that will provide him with a certain amount of income for the rest of his life. However, this is not a life insurance policy. What type of contract does this person have?

Annuity

What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?

Straight life

What type of annuity can be purchased with a single premium?

Immediate annuity

What causes a variable annuity benefit to vary?

The annuity's underlying investments

What type of license(s) is/are required in order to sell variable annuities?

A life insurance license and a securities license

What annuity settlement option provides income payments to the annuitant for the duration of their life, and also guarantees payment for a specified number of years?

Life income with period certain

Can a business or a corporation be an annuitant?

No, an annuitant must always be a natural person.

In an annuity, the accumulated money is converted into a stream of income during which phase?

Annuitization period

Whose life expectancy is taken into consideration in an annuity contract?

Annuitant

In flexible premium payment annuities, the term "flexible"

Amount of premium

What type of annuity requires an agent to have a securities license?

Variable annuity

If the current interest rate on an annuity is higher than the guaranteed rate, which rate will the annuity owner receive as part of the annuity payment?

Current

If the annuitant dies before the annuitization period starts, what will the beneficiary receive?

Either the amount paid into the annuity or the cash value, whichever is greater

Who receives income payments from an annuity?

Annuitant

How long is income paid under a pure life annuity?

Only for the life of the annuitant

If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?

Annuitant's estate

How are annuities classified depending on how many lives they cover?

Single life and multiple life annuities

Which of the following provisions in annuity contracts allow the owner to surrender the annuity if interest rates drop to a specified level?

Bail-out

Which two terms are associated directly with the way an annuity is funded?

Single payment or periodic payments

Which of the following is NOT true regarding the annuitant?

The annuitant cannot be the same person as the annuity owner

Which of the following best describes what the annuity period is?

The period of time during which accumulated money is converted into income payments

Which of the following products requires a securities license?

Variable annuity

An insurer has discovered that the person holding an annuity contract lied about his age on the application. What will the insurer do?

Adjust the benefits of the policy according to the person’s correct age.

The annuity owner dies during the accumulation period without naming a beneficiary. Annuity’s cash value exceeds premiums paid. Which of the following is TRUE?

The cash value will be paid to the annuitant’s estate

The annuitant dies while the annuity is still in the accumulation stage. Which of the following is TRUE?

The beneficiary will receive the greater of the money paid into the annuity or the cash value.

Which of the following is a short-term annuity that limits the amounts paid to a specific fixed period or until a specific fixed amount is liquidated?

Annuity certain

All of the following statements about equity index annuities are correct EXCEPT

The annuitant receives a fixed amount of return

A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy?

Joint life

What determines the penalty for surrendering a market value adjusted annuity prematurely?

The current interest rate at the time of surrender

If a contract provides a set amount of income for two or more persons with the income stopping upon the first death of the insured, it is called a

Joint life annuity

Which of the following will NOT be an appropriate use of a deferred annuity?

Creating an Estate

After an annuity contract is delivered, a contract holder has a free-look period of

10 days.

Under which installments option does the annuitant select the amount of each payment, and the insurer determines how long they will pay benefits?

Fixed amount

A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select?

Joint and survivor

Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity?

Insurer's guaranteed minimum rate of interest

The term “fixed” in a fixed annuity refers to all of the following EXCEPT

Death benefit

Which of the following is TRUE regarding variable annuities?

The annuitant assumes the risks on investment.

In regards to disclosure requirements for annuity contracts, if the buyer's guide and the disclosure document are available to be printed from the insurer's Web site

This will fulfill the disclosure requirements for applications received through the Internet.

If an insurer has overpaid the benefit on an annuity because the age of the insured was misstated,

The amount and an interest charge may be charged against the current or next payments.

If an annuitant dies before annuitization occurs, what will the beneficiary receive?

Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount

Which of the following is true regarding a waiver of a surrender charge on an annuity contract?

The charge may be waived if the annuitant is confined to a long-term care facility for at least 30 days.

An annuity contract will have a 15-day free look period if

The buyer's guide and disclosure document were not provided at or before application.

Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?

Depreciation period

If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined?

It is a percentage of the cash value and decreases over time.

Who bears all of the investment risk in a fixed annuity?

The insurance company

How long is the free-look period for annuities if the contract holder is older than 65?

30 days