EXAMFX Annuity Concepts and Uses 4

Question 1

A flexible-premium deferred annuity differs from a single-premium deferred annuity in that it:

Accepted Answer

Allows the owner to make multiple premium payments over time

Answer

Starts income immediately upon purchase

Answer

Guarantees a higher interest rate

Answer

Requires a minimum payment of $100,000

Question 2

The annuity mortality and expense (M&E) risk charge in a variable annuity primarily compensates the insurer for:

Accepted Answer

Guaranteeing the death benefit and bearing longevity risk

Answer

Managing the subaccount portfolios

Answer

Filing state regulatory reports

Answer

Paying commissions to agents

Question 3

Which of the following is an example of a qualified annuity?

Accepted Answer

An annuity held inside an IRA funded with pre-tax contributions

Answer

An annuity purchased with after-tax dollars outside a retirement plan

Answer

A non-qualified deferred compensation plan

Answer

A life insurance policy with an annuity rider

Question 4

What is 'annuitization'?

Accepted Answer

Converting the accumulated value into a stream of periodic income payments

Answer

Transferring ownership of an annuity to another person

Answer

Increasing the death benefit through additional premiums

Answer

Rolling over an annuity to a different insurer tax-free

Question 5

Under the LIFO (last-in, first-out) tax rule for non-qualified deferred annuities, partial withdrawals are treated as:

Accepted Answer

Taxable earnings first, then tax-free return of basis

Answer

A tax-free return of basis first, then taxable earnings

Answer

Entirely tax-free up to the contract anniversary date

Answer

Capital gains rather than ordinary income

Question 6

A straight life annuity compared to a life with 20-year certain annuity will typically provide:

Accepted Answer

Higher monthly payments because there is no guaranteed minimum payment period

Answer

Lower monthly payments because it carries more risk for the insurer

Answer

The same monthly payments since both are life-contingent

Answer

Lower payments because benefits extend to heirs

Question 7

Which regulatory body primarily oversees the sale of variable annuities in addition to state insurance departments?

Accepted Answer

Securities and Exchange Commission (SEC)

Answer

Federal Reserve Board

Answer

Office of the Comptroller of the Currency

Answer

Consumer Financial Protection Bureau