Life & Health Insurance Annuities and Retirement Plans Flashcards
6 cards from real Life & Health Insurance Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
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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?
Answer: Joint and Survivor
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.
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?
Answer: Variable Annuity
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.
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?
Answer: Deposit the full amount, including the 20% withheld, into a Rollover IRA within 60 days.
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.
Which of the following statements correctly describes a key difference between a qualified and a non-qualified annuity?
Answer: Qualified annuities are funded with pre-tax dollars, and the entire distribution is subject to ordinary income tax.
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 Because the contributions were not taxed initially, the entire amount withdrawn (both principal and earnings) is taxed as ordinary income.
During which phase of a deferred annuity are premiums paid and the contract value grows on a tax-deferred basis?
Answer: Accumulation Period
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.
A 45-year-old individual is covered by a retirement plan at work and has a high modified adjusted gross income (MAGI) that exceeds the limits for a deductible IRA contribution. They still want to save for retirement in an IRA. Which of the following is a permissible action?
Answer: Make a non-deductible contribution to a Traditional IRA.
While high income and coverage by an employer plan can limit or eliminate the ability to deduct Traditional IRA contributions, anyone with earned income can make non-deductible contributions to a Traditional IRA up to the annual limit. Roth IRA contributions also have income limitations.