Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Variable Annuities & Variable Life Products 1 — Questions and Answers
Question 1: A variable annuity contract is considered a security because:
- It is issued by an insurance company
- Its value fluctuates based on the performance of underlying investment subaccounts (Correct answer)
- It provides a guaranteed death benefit
- It is tax-deferred
Correct answer: Its value fluctuates based on the performance of underlying investment subaccounts
Variable annuities are classified as securities because contract values fluctuate with the investment performance of the chosen subaccounts.
Question 2: Which of the following is a key difference between the accumulation units and annuity units in a variable annuity?
- Accumulation units are purchased during the payout phase; annuity units during the accumulation phase
- Accumulation units represent the investor's interest during the savings phase; annuity units determine payment amounts during the payout phase (Correct answer)
- Accumulation units have a fixed value; annuity units fluctuate
- Annuity units can be surrendered for cash; accumulation units cannot
Correct answer: Accumulation units represent the investor's interest during the savings phase; annuity units determine payment amounts during the payout phase
During the accumulation phase the investor holds accumulation units; upon annuitization these convert to annuity units that determine periodic payment amounts.
Question 3: An assumed interest rate (AIR) in a variable annuity payout is best described as:
- The guaranteed minimum rate of return on subaccount investments
- A benchmark rate used to determine whether annuity payments increase, decrease, or stay the same (Correct answer)
- The rate used to calculate surrender charges
- The maximum rate of return the insurer will credit to the account
Correct answer: A benchmark rate used to determine whether annuity payments increase, decrease, or stay the same
The AIR is the hurdle rate; if subaccount performance exceeds the AIR, payments rise, and if it falls short, payments decrease.
Question 4: Which suitability consideration is MOST important when recommending a variable annuity to a client?
- Whether the client has a checking account with the same insurer
- Whether the client has a long investment time horizon and can tolerate market risk (Correct answer)
- Whether the client already owns a term life insurance policy
- Whether the client prefers equity funds over bond funds
Correct answer: Whether the client has a long investment time horizon and can tolerate market risk
Variable annuities are long-term, market-linked products best suited for investors who can tolerate investment risk over an extended horizon.
Question 5: The free-look period in a variable annuity contract allows the purchaser to:
- Invest in any subaccount without incurring management fees for the first year
- Cancel the contract and receive a full refund within a specified number of days after delivery (Correct answer)
- Surrender the contract without paying a contingent deferred sales charge
- Transfer assets among subaccounts at no cost for a limited period
Correct answer: Cancel the contract and receive a full refund within a specified number of days after delivery
The free-look period (typically 10–30 days) gives new contract owners the right to rescind the contract and receive a full premium refund.
Question 6: Which of the following variable annuity charges compensates the insurer for providing the death benefit guarantee?
- Management fee
- Mortality and expense (M&E) risk charge (Correct answer)
- Administrative fee
- Surrender charge
Correct answer: Mortality and expense (M&E) risk charge
The M&E risk charge covers the insurer's cost of guaranteeing the death benefit and certain annuitization options.
Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Variable Annuities & Variable Life Products 1
A variable annuity contract is considered a security because: