EXAMFX Annuity Concepts and Uses 5

Question 1

An annuity owner who is NOT the annuitant dies. Under most contracts, what happens?

Accepted Answer

The contract must be distributed within five years or taken as income over the beneficiary's life

Answer

The annuity automatically annuitizes under a life-only option

Answer

The contract continues unchanged with no distribution required

Answer

The death benefit is paid only if the owner was also the annuitant

Question 2

A 1035 exchange allows an annuity owner to:

Accepted Answer

Convert a life insurance policy or annuity to another annuity without current tax liability

Answer

Withdraw funds from an annuity before age 59½ without penalty

Answer

Exchange an annuity for term life insurance tax-free

Answer

Transfer ownership to a spouse without triggering income tax

Question 3

Which annuity provision protects the owner against the insurance company's insolvency up to statutory limits?

Accepted Answer

State guaranty association coverage

Answer

The free-look provision

Answer

The non-forfeiture benefit

Answer

The incontestability clause

Question 4

Which scenario best illustrates using an annuity for 'period certain' income needs?

Accepted Answer

A 60-year-old who needs income for exactly 5 years until Social Security begins

Answer

A retiree who wants the highest possible lifetime income regardless of heirs

Answer

An investor seeking maximum market growth over 20 years

Answer

A business funding key-person life insurance needs

Question 5

The accumulation unit in a variable deferred annuity is used to:

Accepted Answer

Record the owner's share of the separate account during the accumulation phase

Answer

Set the guaranteed minimum interest rate

Answer

Calculate the death benefit in a fixed annuity

Answer

Determine the surrender charge schedule

Question 6

What is the primary tax advantage of using an annuity inside a non-qualified plan?

Accepted Answer

Earnings grow tax-deferred until withdrawn

Answer

Contributions are tax-deductible

Answer

Qualified distributions are entirely tax-free

Answer

Annual gains are taxed at capital gains rates

Question 7

An annuity with a 'bailout' provision allows the owner to surrender the contract without penalty when:

Accepted Answer

The credited interest rate falls below a specified minimum threshold

Answer

The annuitant reaches age 70½

Answer

The stock market index drops more than 20%

Answer

The insurer changes its underwriting guidelines