DC Variable Products in Insurance 2

Question 1

Which of the following is a key tax advantage of a variable annuity held in a non-qualified account?

Accepted Answer

Investment earnings grow tax-deferred until withdrawal

Answer

Variable annuity earnings accumulate on a tax-deferred basis in non-qualified accounts—taxes are owed only when funds are distributed.

Question 2

What is a 'surrender charge' in a DC variable annuity?

Accepted Answer

A penalty imposed by the insurer for withdrawals made during the surrender charge period, usually declining over time

Answer

A surrender charge is a back-end fee imposed by the insurer for early withdrawals during the surrender period, designed to recoup distribution costs.

Question 3

Under DC insurance law, what is the '10% free withdrawal' provision commonly found in variable annuity contracts?

Accepted Answer

Allows the policyholder to withdraw 10% of the account value annually without a surrender charge

Answer

Most variable annuities allow policyholders to withdraw up to 10% of the account value annually without incurring the surrender charge.

Question 4

Which of the following describes a 'guaranteed minimum death benefit' (GMDB) in a variable annuity?

Accepted Answer

Guarantees the policy will pay the full premium back to the beneficiary, even if the account value is lower due to market losses

Answer

A GMDB ensures that beneficiaries receive at least the total premiums paid (or a stepped-up value) as a death benefit, even if market losses have reduced the account value below that amount.

Question 5

In DC, an immediate variable annuity differs from a deferred variable annuity in which key way?

Accepted Answer

Immediate variable annuities begin income payments within one year of purchase; deferred variable annuities accumulate value before annuitization

Answer

An immediate variable annuity (SPIA variant) converts a lump sum into variable income payments starting within one year. A deferred annuity accumulates value over an accumulation phase before annuitization.

DC - District of Columbia Insurance Practice Test

DC - District of Columbia Insurance Practice Test

DC Variable Products in Insurance 2