Textbook Chap 8 (SIE)

What payment option requires the insurance company to provide payments for as long as one of two people remain alive?

Joint and Last Survivor

T/F: In a straight-life annuity payout option, no beneficiary will receive payments at the annuitant’s death

True. All payments cease upon the annuitant’s death

Is a fixed annuity a security?

No, but variable contracts (e.g., variable annuities or variable life insurance) are considered securities

What written documentation is required when recommending a 1035 exchange of a variable annuity?

Whether the client has completed a 1035 exchange in the past 36 months

Who can contribute to a qualified annuity?

Individuals who wore for non-profit organizations and public schools

What is the tax implication of the death benefit on a variable annuity?

Any amount above the contract’s basis is table to the beneficiary

What type of annuity has a minimum rate of return and tracks an index?

An equity indexed annuity (EIA)

What is a 1035 Exchange?

A tax-free exchange of one annuity for another. These exchanges are allowed under Section 1035 of the Tax Code

What fee does a variable annuity company degree charge to cover its cost of operations?

An administrative fee

What type of annuity guarantees that an amount equal to the value of the annuity is paid to designated beneficiary?

Unit Refund annuity

A qualified annuity allows for ____ contributions and the annuity value grows on a _____ basis

pre-tax, deferred

What is the expense risk charge on an annuity?

The expense risk charge pay the issuer in the expenses for administering the annuity are more than estimated

Which annuity allows for a pre-tax contribution - Qualified or Non-Qualified?

qualified

May an aunt set up a 529 plan for her niece?

Yes. The doner is not required to be a parent

In a _______ annuity, the owner invests on a after-tax basis with earnings accumulating on a tax-deferred basis

non-qualified

Identify the acronym: EIA

Equity-Indexed Annuity (also known as an Equity indexed contract or EIC)

Which annuity provides a guaranteed return —fixed or variable?

fixed annuities

Who assumes the investment risk in a variable annuity contract?

the client or contract owner

In a non-qualified annuity, how is the payout taxed?

Only the earnings portion is subject to tax as ordinary income

Which annuity payout option provides for the greatest monthly payment?

Straight life

An annuity client contributed $100,000 which has grown to $200,000. If the client dies, what is her death benefit?

$200,000. The death benefit on an annuity is the greater of the contribution or the account value

What is the maximum sales charge that may be levied on a variable annuity sale?

There is no statutory maximum. FINRA rules require the charge be fair and reasonable

Is a person who invests in a variable annuity more susceptible to legislative risk or investment risk?

Investment risk, since the separate account of a variable fluctuates with the overall performance of the market

What is the purpose of 529 ABLE (or 529A) plans?

They are savings plans to assist individuals with disabilities to supplement Social Security benefits

T/F: Annuity owners can redeem their accumulation units at any time

True. Although surrender charges and taxes may apply, investors can withdraw their money at any time

At annuitization (payout), what will determine that annuitant’s payment?

A fixed number of annuity units with a fluctuating value per unit

Describe the tax treatment of contributions made to a 529 plan.

They are after-tax contributions that may possibly grow tax-free

A variable annuity is most suitable for client who is seeking _______ _________ over a long period.

capital appreciation

Identify the acronym: LGIP

Local Government Investment Pool

What is the purpose for creating LGIPs

LGIPs are created by state and local governments for municipal entities to invest their excess cash.

In a qualified annuity, how is the payout taxed?

The entire payout is taxed as ordinary income, since the annuity was funded with pre-tax dollars

All variable contract assets are placed in the insurance company’s _______ account

All variable contract assets are placed in the insurance company’s separate account

In a 529 Plan, what happens if the funds are withdrawn, but not used for qualified education expenses?