CAS CAS Annuity Riders and Contract Provisions 2

Question 1

What is the 'free-look' provision in an annuity contract?

Accepted Answer

The right to cancel the contract within a specified period and receive a full refund

Answer

The free-look provision gives the contract owner a set period (typically 10–30 days after receipt) to review and cancel the annuity without penalty, receiving a full refund of premiums paid.

Question 2

In an annuity contract, what is a 'market value adjustment' (MVA)?

Accepted Answer

A formula that adjusts the surrender value up or down based on interest rate changes

Answer

A market value adjustment (MVA) modifies the surrender value of certain fixed or fixed-indexed annuities based on the difference between current interest rates and the rate at time of purchase, which can increase or decrease the amount received on surrender.

Question 3

What is the purpose of a 'bailout' provision in a fixed annuity contract?

Accepted Answer

To allow the owner to surrender without penalty if the renewal rate falls below a specified minimum

Answer

A bailout provision allows the annuity owner to surrender the contract without surrender charges if the renewal interest rate is set below a specified trigger rate, protecting the owner from being locked into low returns.

Question 4

Which annuity contract feature determines how the contract value will be distributed to beneficiaries upon the owner's death?

Accepted Answer

Beneficiary designation and death benefit provision

Answer

The beneficiary designation and death benefit provision specify who receives the annuity's value upon the owner's death and how that value is calculated and distributed.

Question 5

What happens when an annuity contract reaches the 'annuity date' or 'maturity date'?

Accepted Answer

The accumulation phase ends and the owner must choose an income or distribution option

Answer

The annuity date (maturity date) marks the end of the accumulation phase; at that point, the contract owner must elect a distribution or income option, such as annuitization or a lump-sum withdrawal.

(CAS) Certified Annuity Specialist Practice Test

(CAS) Certified Annuity Specialist Practice Test

CAS CAS Annuity Riders and Contract Provisions 2