CRPC Annuities and Insurance Products in Retirement

Question 1

What is the key distinction between a fixed annuity and a variable annuity?

Accepted Answer

Fixed annuities guarantee a minimum interest rate while variable annuities invest in market-linked subaccounts

Answer

Fixed annuities credit a guaranteed minimum interest rate, whereas variable annuities allow investment in market-linked subaccounts with no return guarantee.

Question 2

What is the primary retirement planning benefit of a single premium immediate annuity (SPIA)?

Accepted Answer

Guaranteed lifetime income beginning within one year of purchase

Answer

A SPIA converts a lump sum into guaranteed income payments that can begin within one month and continue for the annuitant's lifetime.

Question 3

What is a deferred income annuity (DIA)?

Accepted Answer

An annuity purchased today with income payments beginning at a specified future date

Answer

A DIA (also called a longevity annuity) is funded with a lump sum today, with income payments starting at a future date—often an advanced age—to hedge against longevity risk.

Question 4

How does a fixed indexed annuity (FIA) credit interest?

Accepted Answer

It credits interest linked to an index subject to caps or participation rates while protecting principal from losses

Answer

FIAs credit interest linked to an index such as the S&P 500, subject to caps or participation rates, while protecting the principal from negative index returns.

Question 5

What is the exclusion ratio used to calculate for a non-qualified immediate annuity?

Accepted Answer

The tax-free portion of each payment as a return of after-tax cost basis

Answer

The exclusion ratio determines what portion of each annuity payment is a tax-free return of the owner's after-tax cost basis.

CRPC - Chartered Retirement Planning Counselor Practice Test

CRPC - Chartered Retirement Planning Counselor Practice Test

CRPC Annuities and Insurance Products in Retirement