RAA Annuity Products & Structures 3

Question 1

In a variable annuity, sub-accounts are most analogous to which investment vehicle?

Accepted Answer

Mutual funds

Answer

Variable annuity sub-accounts function like mutual funds — they are pooled investment portfolios whose value fluctuates with market performance and which offer no guaranteed return.

Question 2

Which living benefit rider on a variable or indexed annuity guarantees that the income base used to calculate withdrawals grows at a specified rate regardless of actual account performance?

Accepted Answer

Guaranteed Minimum Withdrawal Benefit (GMWB)

Answer

A GMWB guarantees the owner can withdraw a specified percentage of the income base (which may step up or roll up) for life, even if the actual account value falls to zero.

Question 3

A 'period-certain only' payout option differs from a 'life with period certain' option in that it:

Accepted Answer

Pays only for a fixed number of years regardless of whether the annuitant is alive

Answer

A period-certain only annuity pays for a set number of years (e.g., 10 or 20) regardless of the annuitant's life status; if the annuitant dies early, payments continue to the beneficiary.

Question 4

Which annuity type is specifically designed to address longevity risk by beginning income payments far in the future, such as at age 80 or 85?

Accepted Answer

Deferred income annuity (DIA) / longevity annuity

Answer

A deferred income annuity (DIA), sometimes called a longevity annuity, is purchased today but defers income payments until a future date, providing insurance against outliving assets in advanced age.

Question 5

An annuity owner exchanges a non-qualified deferred annuity for a new annuity contract without triggering current income tax. This transaction is known as a:

Accepted Answer

Section 1035 exchange

Answer

IRC Section 1035 allows tax-free exchanges of life insurance policies, endowments, and annuity contracts for like-kind replacements, preserving the original cost basis in the new contract.

(RAA) Registered Annuity Advisor Practice Test

(RAA) Registered Annuity Advisor Practice Test

RAA Annuity Products & Structures 3