RAA Annuity Riders & Optional Benefits 3

Question 1

Under FINRA and SEC regulations, when must a variable annuity rider's costs and limitations be disclosed to a prospective purchaser?

Accepted Answer

Before or at the point of sale, as part of the prospectus and suitability review

Answer

FINRA rules and SEC regulations require that all material information about variable annuity riders—including costs, limitations, and conditions—be disclosed before or at the point of sale through the prospectus and the suitability review process.

Question 2

When a GMWB rider's underlying account value is depleted through guaranteed withdrawals, what typically occurs?

Accepted Answer

The insurance company continues making guaranteed withdrawal payments from its general account

Answer

When GMWB withdrawals deplete the account value to zero, the insurance company fulfills its guarantee by continuing withdrawal payments from its general account—this is the core risk-transfer benefit of the rider.

Question 3

Which of the following is a critical limitation commonly found in GLWB income riders that clients must fully understand?

Accepted Answer

Withdrawals exceeding the guaranteed annual amount can permanently reduce the benefit base

Answer

Excess withdrawals—amounts above the annual guaranteed withdrawal percentage—typically reduce the income benefit base proportionally or dollar-for-dollar, permanently lowering future guaranteed income payments.

Question 4

What is the primary difference between a 'roll-up' and a 'ratchet' feature in an annuity income rider benefit base?

Accepted Answer

Roll-up grows the benefit base at a fixed guaranteed percentage annually; ratchet steps it up to the highest contract anniversary account value

Answer

A roll-up grows the benefit base at a guaranteed fixed rate (e.g., 6% per year) regardless of market performance, while a ratchet (or step-up) locks in the highest account value achieved at each contract anniversary, whichever is greater.

Question 5

For a fixed indexed annuity with an income rider, what does the 'income benefit base' legally represent?

Accepted Answer

A notional accounting figure used solely to calculate income payment amounts, not available as a lump-sum withdrawal

Answer

The income benefit base is a notional (accounting) value that exists solely to calculate guaranteed income payment amounts; it is not the cash surrender value and cannot be taken as a lump-sum distribution.

(RAA) Registered Annuity Advisor Practice Test

(RAA) Registered Annuity Advisor Practice Test

RAA Annuity Riders & Optional Benefits 3