Insurance Annuities & Retirement Plans

Question 1

During which phase of an annuity does the contract owner pay premiums and build cash value?

Accepted Answer

Accumulation phase

Answer

The accumulation phase is the period when premiums are paid and the value grows. The annuitization (payout) phase starts when the insurer begins making income payments.

Question 2

In a variable annuity, who bears the investment risk?

Accepted Answer

The contract owner

Answer

Variable annuity values depend on the performance of separate-account subaccounts, so the contract owner bears the investment risk. Selling them also requires a securities registration in addition to the insurance license.

Question 3

Under federal tax rules, what additional tax generally applies to the taxable portion of annuity withdrawals taken before age 59½?

Accepted Answer

10%

Answer

Premature distributions from an annuity before age 59½ are generally subject to a 10% additional federal tax on the taxable portion, with limited exceptions such as death or disability.

Question 4

A single premium immediate annuity is one in which income payments begin:

Accepted Answer

Within one year of purchase

Answer

An immediate annuity is purchased with a lump sum and starts paying income within one year, usually within a month. A deferred annuity delays payments to a later date.

Question 5

A 'life with period certain' payout option provides:

Accepted Answer

Lifetime income, with a guaranteed minimum number of payments to a beneficiary if the annuitant dies early

Answer

Life with period certain pays the annuitant for life. If the annuitant dies within the certain period, the beneficiary receives the remaining guaranteed payments.

Insurance Practice Test

Insurance Practice Test

Insurance Annuities & Retirement Plans