Life & Health Insurance Annuities and Retirement Plans Questions and Answers

Question 1

An individual is about to retire and wants to purchase an annuity that will provide a guaranteed income stream for them and their spouse for as long as either of them is alive. Which annuity payout option would be most suitable for this goal?

Accepted Answer

Joint and Survivor

Answer

A Joint and Survivor payout option is specifically designed to provide income payments for two or more people, typically a married couple. Payments continue as long as at least one of the annuitants is alive, making it the ideal choice to ensure income for a surviving spouse.

Question 2

In which type of annuity does the policyowner bear the investment risk, with the potential for higher returns but also the possibility of loss of principal?

Accepted Answer

Variable Annuity

Answer

In a Variable Annuity, the contract's value fluctuates based on the performance of underlying investment sub-accounts chosen by the policyowner. This means the policyowner assumes the investment risk, facing potential losses in exchange for the possibility of higher returns compared to a fixed annuity.

Question 3

An employee leaves their job and receives a check for the entire balance of their 401(k). To avoid current taxation and penalties, what must they do?

Accepted Answer

Deposit the full amount, including the 20% withheld, into a Rollover IRA within 60 days.

Answer

When an individual takes an indirect rollover (receiving a check), they have 60 days to deposit the funds into an eligible retirement account, like a Rollover IRA, to avoid it being treated as a taxable distribution. The original plan is required to withhold 20% for taxes, so the individual must use their own funds to make up that 20% to roll over the full amount and defer taxes on the entire balance.

Question 4

Which of the following statements correctly describes a key difference between a qualified and a non-qualified annuity?

Accepted Answer

Qualified annuities are funded with pre-tax dollars, and the entire distribution is subject to ordinary income tax.

Answer

Qualified annuities are used in tax-advantaged retirement plans (like a 401(k) or Traditional IRA) and are funded with pre-tax dollars. Because the contributions were not taxed initially, the entire amount withdrawn (both principal and earnings) is taxed as ordinary income.

Question 5

During which phase of a deferred annuity are premiums paid and the contract value grows on a tax-deferred basis?

Accepted Answer

Accumulation Period

Answer

The Accumulation Period is the initial phase of a deferred annuity where the owner makes contributions (premiums) and the money grows with interest or investment gains. This growth is tax-deferred, meaning no taxes are paid on the earnings until they are withdrawn.

Life & Health Insurance Exam Practice Test

Life & Health Insurance Exam Practice Test

Life & Health Insurance Annuities and Retirement Plans Questions and Answers