RAA Annuity Products & Structures 2

Question 1

Which annuity structure provides a guaranteed minimum interest rate while also crediting interest based on the performance of an external market index?

Accepted Answer

Indexed annuity

Answer

An indexed (or fixed-indexed) annuity credits interest linked to an external index such as the S&P 500 while guaranteeing that the contract value will not fall below zero due to market losses.

Question 2

A participation rate of 70% on an indexed annuity means the contract owner receives:

Accepted Answer

70% of any positive index gain is credited to the account

Answer

The participation rate determines what percentage of the index's positive return is credited to the annuity; a 70% rate means only 70 cents of every dollar of index gain is credited.

Question 3

Which of the following best describes a 'spread' or 'margin' in the context of indexed annuities?

Accepted Answer

An amount deducted from the index gain before crediting interest

Answer

A spread (or margin) is subtracted from the index gain; if the index rises 8% and the spread is 2%, only 6% is credited to the annuity.

Question 4

A deferred annuity's 'accumulation phase' ends when the owner:

Accepted Answer

Annuitizes or surrenders the contract

Answer

The accumulation phase is the period during which premiums grow tax-deferred and ends when the owner annuitizes the contract or surrenders it for its cash value.

Question 5

What distinguishes a 'graded benefit' deferred annuity from a standard deferred annuity?

Accepted Answer

The death benefit increases incrementally over the first several contract years

Answer

A graded benefit annuity pays a limited death benefit (often return of premium) if death occurs early in the contract, with the full account value payable only after the grading period ends.

(RAA) Registered Annuity Advisor Practice Test

(RAA) Registered Annuity Advisor Practice Test

RAA Annuity Products & Structures 2