Life & Health Insurance Exam Life & Health Insurance Annuities and Retirement Plans 2 — Questions and Answers
Question 1: Which annuity payout option provides income for the annuitant's lifetime but guarantees payments for a minimum period even if the annuitant dies early?
- Life only
- Life with period certain (Correct answer)
- Joint and survivor
- Fixed period
Correct answer: Life with period certain
A life with period certain annuity guarantees payments for a specified minimum period regardless of whether the annuitant survives that period.
Question 2: What is the primary tax advantage of a traditional IRA contribution for an eligible individual?
- Contributions grow tax-free
- Contributions may be tax-deductible (Correct answer)
- Withdrawals are tax-free
- No required minimum distributions
Correct answer: Contributions may be tax-deductible
Eligible individuals may deduct traditional IRA contributions from taxable income, reducing their current tax liability.
Question 3: An annuitant selects a joint and 50% survivor option. If the primary annuitant dies, what percentage of the original payment does the survivor receive?
- 100%
- 75%
- 50% (Correct answer)
- 25%
Correct answer: 50%
Under a joint and 50% survivor option, the survivor receives exactly half of the original annuity payment after the primary annuitant's death.
Question 4: Which of the following describes a SIMPLE IRA plan?
- Available only to self-employed individuals
- Requires employer matching contributions (Correct answer)
- Allows contributions up to the 401(k) limit
- Open to companies of any size
Correct answer: Requires employer matching contributions
SIMPLE IRAs require employers to either match employee contributions up to 3% of compensation or make a flat 2% nonelective contribution.
Question 5: What term describes the risk that an annuitant will outlive their assets or income stream?
- Inflation risk
- Longevity risk (Correct answer)
- Interest rate risk
- Liquidity risk
Correct answer: Longevity risk
Longevity risk is the risk of outliving one's financial resources, which annuities are specifically designed to mitigate.
Question 6: In a 403(b) plan, which employees are typically eligible to participate?
- Federal government workers
- Employees of public schools and tax-exempt organizations (Correct answer)
- Employees of for-profit corporations only
- Self-employed individuals only
Correct answer: Employees of public schools and tax-exempt organizations
403(b) plans are retirement savings plans available to employees of public educational institutions and 501(c)(3) tax-exempt organizations.
Question 7: Which annuity feature allows the contract owner to withdraw a percentage of the account value each year without triggering surrender charges?
- Annuitization
- Free withdrawal provision (Correct answer)
- Bailout provision
- Waiver of surrender
Correct answer: Free withdrawal provision
The free withdrawal provision typically allows the owner to withdraw up to 10% of the account value annually without incurring surrender charges.
Life & Health Insurance Exam Life & Health Insurance Annuities and Retirement Plans 2
Which annuity payout option provides income for the annuitant's lifetime but guarantees payments for a minimum period even if the annuitant dies early?