EXAMFX Annuity Concepts and Uses 3

Question 1

Under IRC Section 72, the exclusion ratio applied to annuity payments determines:

Accepted Answer

What portion of each payment represents a tax-free return of cost basis

Answer

The maximum annual contribution allowed

Answer

The penalty for early withdrawal

Answer

The maximum death benefit payable

Question 2

Which type of annuity is most appropriate for a retiree who wants guaranteed income but is concerned about outliving savings?

Accepted Answer

Immediate life annuity

Answer

Single-premium deferred annuity

Answer

Flexible-premium deferred annuity

Answer

Modified endowment contract

Question 3

The 'free look' provision in an annuity contract allows the buyer to:

Accepted Answer

Surrender the contract for a full refund within a specified period after delivery

Answer

Transfer funds between subaccounts without charge

Answer

Skip premium payments during financial hardship

Answer

Name multiple annuitants on one contract

Question 4

When a non-qualified annuity is surrendered before age 59½ and the owner receives a taxable gain, the IRS imposes a:

Accepted Answer

10% premature distribution penalty in addition to ordinary income tax

Answer

20% flat withholding tax only

Answer

5% excise tax on the entire account value

Answer

No penalty if the policy has been held more than three years

Question 5

A joint and 100% survivor annuity option means:

Accepted Answer

The full payment amount continues to the surviving annuitant for life

Answer

Payments are reduced by 50% after the first annuitant dies

Answer

Income stops upon the death of either annuitant

Answer

Payments are paid to a trust for 100 years

Question 6

An annuity owner changes the contract's beneficiary. Who must approve this change?

Accepted Answer

The owner alone, provided no irrevocable beneficiary is designated

Answer

The current beneficiary

Answer

The annuitant if different from the owner

Answer

The state insurance department

Question 7

Which feature distinguishes a variable annuity from a fixed annuity?

Accepted Answer

The accumulation value in a variable annuity fluctuates based on subaccount performance

Answer

Variable annuities are not regulated by the SEC

Answer

Variable annuities never have surrender charges

Answer

Variable annuities always guarantee a minimum interest rate