EXAMFX Annuity Concepts and Uses 2

Question 1

Which annuity payout option guarantees income for as long as the annuitant lives, with no payments to beneficiaries after death?

Accepted Answer

Life only

Answer

The life-only option provides the highest monthly payment but stops entirely at the annuitant's death with no residual benefit.

Question 2

An indexed annuity credits interest based on the performance of:

Accepted Answer

An external market index such as the S&P 500

Answer

Indexed annuities link credited interest to an external index, offering upside potential while typically guaranteeing a minimum floor.

Question 3

What is the primary purpose of a surrender charge on a deferred annuity?

Accepted Answer

To recover the insurer's acquisition costs if the contract is surrendered early

Answer

Surrender charges recoup front-end expenses the insurer incurs and typically decline over a set period.

Question 4

During the accumulation phase of a deferred annuity, the owner's funds grow on a:

Accepted Answer

Tax-deferred basis

Answer

Annuity earnings accumulate tax-deferred, meaning taxes are owed only when funds are distributed.

Question 5

A variable annuity's subaccounts are most similar to which investment vehicle?

Accepted Answer

Mutual funds

Answer

Subaccounts function like mutual funds, allowing the owner to direct premiums among various investment options.

(EXAMFX) Exam FX Insurance Practice Test