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

Flexible-premium contracts accept ongoing contributions rather than requiring one lump-sum deposit at inception.

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

The M&E charge covers the insurer's risk of guaranteeing a death benefit and providing lifetime income regardless of how long the annuitant lives.

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

Qualified annuities are funded with pre-tax dollars inside IRS-approved plans such as IRAs or 401(k)s, and distributions are fully taxable.

Question 4

What is 'annuitization'?

Accepted Answer

Converting the accumulated value into a stream of periodic income payments

Answer

Annuitization is the process of converting the contract's accumulated value into a series of income payments under a chosen settlement option.

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

The IRS requires that gains (last in) come out first on non-qualified annuity withdrawals, making them fully taxable until all gains are distributed.

(EXAMFX) Exam FX Insurance Practice Test