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

IRS rules generally require distribution of the annuity's value within five years of the owner's death, or as periodic payments over the beneficiary's life expectancy.

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

IRC Section 1035 permits tax-free transfers from a life insurance policy or existing annuity to a new annuity, preserving the tax-deferred status.

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

State guaranty associations provide a safety net for policyholders if an insurer becomes insolvent, typically covering annuity values up to a defined limit.

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 period certain annuity is ideal when income is needed for a specific, known duration such as bridging the gap to Social Security.

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

Accumulation units track the owner's proportional interest in the subaccounts during the growth phase before annuitization.

(EXAMFX) Exam FX Insurance Practice Test

(EXAMFX) Exam FX Insurance Practice Test

EXAMFX Annuity Concepts and Uses 5