The LATF-adopted ILVA Actuarial Guideline has an effective date of July 1, 2024 for contracts, riders or endorsements issued on or after that date. *Under the mortality guarantee, the insurance company assumes mortality risk by guaranteeing payments for life, though the amount of each payment is not guaranteed. Guaranteed Lifetime Annuity: How They Work, When They Pay You, This is also generally true of retirement plans. This factor is used to establish the dollar amount of the first annuity payment. They are also riddled with fees, which can cut into profits. D)the state insurance department. B) I and III. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. A) I and IV. \hspace{10pt} Social security, 6%6\%6% on first $100,000\$100,000$100,000 of employee annual earnings Reference: 12.3.2.1 in the License Exam. The growth portion is taxed as ordinary income. Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies. The separate account performance compared to last month's performance. C) number of accumulation units. a variable annuity does not guarantee an earnings rate of return. However, the web version (cat. A trend is formed from non-repetitive actions of people. The value of the annuity units is fixed. Cashing out life insurance policies or VAs where steep surrender charges are likely to exist, particularly in the earlier years of those contracts, is also considered abusive. B)each annuity unit's value varies with time, but the number of annuity units is fixed. Before buying a variable annuity, investors should carefully read the prospectus to try to understand the expenses, risks, and formulas for calculating investment gains or losses. B)Tax-free municipal bonds Sub accounts and mutual funds are conceptually identical, but sub accounts don't have ticker symbols that investors can easily type into a fund tracker for research purposes. C) suggest to the client that perhaps a loan or refinancing his vacation home might be a better way to fund the contract purchase. A) Joint tenants annuity. D)II and III. Annuities: How to Find the Right One for You, How a Fixed Annuity Works After Retirement, Pros and Cons of Indexed Universal Life Insurance. Reference: 12.1.2 in the License Exam. B) The death benefit cannot ever be more than the guaranteed benefit. The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. A)Joint tenants annuity. The client's investment objectives, tax bracket, investment experience and risk tolerance all align well with a VA recommendation. An investor who has purchased a nonqualified variable annuity has the right to: Variable annuities must be registered with: All of the following statements concerning a variable annuity are correct EXCEPT: D) variable annuities will protect an investor against capital loss. Cashing out life insurance policies or VAs where steep surrender charges are likely to exist, particularly in the earlier years of those contracts, is also considered abusive. Once the contract is annuitized, monthly payments to the customer are: A) Dow Jones Industrial Average. A) Capital gains taxation on the earnings withdrawn in excess of the owner's basis. D) accumulation shares. Home; About. must provide full and fair disclosure. A)the yield is always higher than mortgage yields. On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. Question #37 of 48Question ID: 606817 Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions. D) I and III. All of the following statements concerning a variable annuity are correct EXCEPT: C) insurance companies keep variable annuity funds in separate accounts from other insurance products. IV. Describe. The most suitable option and one considered effective for married couples is a single joint and last survivor contract. vote on proposed changes in investment policy. Variable annuity Which of the following is characteristic of fixed annuities? By clicking Accept All Cookies, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. Given that all of the current retirement investments are subject to market risk, the customer wants these new funds to have no market risk exposure. The tax on this is $2,800 ($10,000 x 28%). U.S. Securities and Exchange Commission. A guaranteed death benefit guarantees that the beneficiary will receive a death benefit if the annuitant dies before the annuity begins paying benefits. Ted's Bio; Fact Sheet; Hoja Informativa Del Ted Fund; Ted Fund Board 2021-22; 2021 Ted Fund Donors; Ted Fund Donors Over the Years. Reference: 12.3.3 in the License Exam. Options. C)The entire $10,000 is taxable as ordinary income. The customer, in the accumulation stage of the annuity, is holding accumulation units. A) be paid to a designated beneficiary. D) There is no guarantee regarding the investment results of the separate account. The separate account is used for both variable life insurance and variable annuity investments. *Funding a VA contract by cashing out either life insurance policies or existing VA contracts, especially those held for a short period of time is not suitable. I. Distributed along a dermatome. If the customer takes a withdrawal of $10,000, what are the tax consequences? C)number of accumulation units. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. Question #19 of 48Question ID: 606826 Funding a VA contract by cashing out either life insurance policies or existing VA contracts, especially those held for a short period of time is not suitable. *An immediate annuity has no accumulation period. *Mortality risk- If an annuitant lives longer than expected, the insurance company will have to continue payments longer than expected. When may a variable annuity account be surrendered? savingsbonds30,420Groupinsurance45,630$341,718\begin{array}{lrlr} No, annuities are not FDIC-insured as they are not bank products. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. C)such an annuity is designed to combat inflation risk. For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? C)3800. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. Variable annuities grow tax-deferred, so you dont have to pay taxes on any investment gains until you begin receiving income or make a withdrawal. Contributions to a nonqualified annuity are made with the owner's after-tax dollars. D)value of accumulation units. The annuity unit's value represents a guaranteed return. D) cost of living. B) the state insurance department. For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. the agent must be licensed in both insurance and securities. D) II and IV. Distribution can take place before or during any solicitation for sale. III. B) During the accumulation period. However, if you take a withdrawal during the contractssurrender period, which can be as long as 15 years, youll generally have to pay a surrender fee. *As contributions are made with after-tax dollars, only the earnings generated are taxed on withdrawal. *Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. For example, when paying rent, the rent payment (PMT) c) Construct a contingency table showing all the joint and marginal probabilities. are purchased primarily for their insurance features C)none of these. D) expense guarantee. $63,000 b.$51,000 c. $18,000 d.$6,000. C)I and IV. D) Variable annuities. This cloud model is composed of five essential characteristics, three service models, and four deployment models. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. B) II and III. C)annuity units. A) mutual fund units. When the annuitization option is selected, each payment represents both capital and earnings. A) I and IV. Accumulation Period of Fixed Annuities During this period, premiums are credited with interest which accumulates on a yearly basis. B) single payment deferred annuity. used to escrow late or otherwise delinquent premium payments. B)Life annuity with period certain. II. Determine whether the following events are independent or dependent. A) Only during the payout period. Life Insurance vs. Annuity: What's the Difference? D)Variable annuity. There are two interest rates under fixed annuities. Based on the clients profile which of the following would be the best recommendation? B) 10% penalty plus payment of ordinary income tax on all funds withdrawn. Try Distributions from nonqualified variable annuities are: A deferred annuity is an insurance contract that promises to pay the buyer a regular stream of income, or a lump sum, at some date in the future. d) What is the probability that a user is from the United States, given that he or she logs on every day? C)III and IV *A variable annuity may only be surrendered during the accumulation period. A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. The client's investment objectives, tax bracket, investment experience and risk tolerance all align well with a VA recommendation. Variable annuity salespeople must be registered with FINRA and the state insurance department. A) I and III. *Only variable annuities have payout plans that provide the client income for life. D)an accounting measure used to determine payments to the owner of the variable annuity. What is the annual cash flow generated from the new machine? The wage for applicants for this position is $45,979.00 per year. must provide full and fair disclosure. While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount. A) A variable annuity If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? If a customer is about to buy a variable annuity contract and wants to select an annuity with a payout option providing the largest possible monthly payment, which of the following payout options would be most suitable? A) The entire amount is taxed as ordinary income, because it is not life insurance. The noble relatives of the Count d'Horn absolutely blocked up the ante-chambers of the regent, praying for mercy on the misguided youth, and alleging that he was insane . B)4200. C) payments continue for a pre-determined period of time. Supplemental income stream for retirement, not preservation of capital should be the catalyst to consider a VA and for anyone who may need access to the sum invested for any reason a VA would not be considered a suitable recommendation. A) Age 56, available cash to invest, makes the maximum retirement plan contributions to an existing IRA and 401(k) plan If the owner of a variable annuity dies during the accumulation period, any death benefit will: If the annuitant dies during the accumulation period, his/her beneficiary will receive the promised annuity payments. A) II and III. D) A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. have investment risk that is assumed by the investor In deciding whether to put money into a variable annuity versus some other type of investment, its worth weighing these pros and cons. D) Variable Annuity. C)Keogh plans. Do homework Doing homework can help you learn and understand the material covered in class. Question #16 of 48Question ID: 606807 Rolling two 222s followed by one 666 on three tosses of a fair die, Use the table 1 and table 2 to complete the table 3 Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. There is a guaranteed minimum interest rate, normally amounting to between 1 and 3 percent. The following information about the payroll for the week ended December 303030 was obtained from the records of Vienna Co.: Salaries:Deductions:Salessalaries$670,000Incometaxwithheld$198,744Warehousesalaries110,000Socialsecuritytaxwithheld51,714Officesalaries234,000Medicaretaxwithheld15,210$1,014,000U.S. The earnings are taxable but the cost basis is returned tax free. Future annuity payments will vary according to the separate account's performance. The tax on this is $2,800 ($10,000 x 28%). D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. C) each annuity unit's value and the number of annuity units vary with time. C) the yield is always higher than bond yields. The separate account is NOT likely to invest in: An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: have investment risk that is assumed by the investor A)II and IV. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. a. it performs a single task b. it is self-contained and independent of other modules c. it is relatively short d. all of the above are chamcleristics of a program module 7. All of the following statements regarding variable annuities are true EXCEPT: A) variable annuities offer the investor protection against capital loss. A)number of annuity units. The accumulation unit's value is used to calculate the total value of the account. D) a minimum of 10 years of variable payments, followed by additional variable payments for life Distribution of dividends occurs during the accumulation period. C) early annuity phase-in A)Purchasing power risk. This role is also eligible for annual short-term incentive compensation. *The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. Contributions to an IRA may be tax deductible, depending on the individual's earnings and participation in a company-sponsored qualified retirement plan. C)III and IV. C) value of underlying securities held in the separate account. A)value of underlying securities held in the separate account. B) The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. *A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. C)II and IV. Though its stated return might not be as high as the other choices potential returns, only a fixed annuity fits the objective and risk averse traits of this client. The trial of the assassins commenced on the following day; and the evidence being so clear, they were both found guilty, and condemned, to be broken alive on the wheel. A fixed annuity is an insurance contract that pays a guaranteed rate of interest on the owner's contributions and later provides a guaranteed income. savingsbondsGroupinsurance$198,74451,71415,21030,42045,630$341,718, Tax rates assumed: Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. *If the separate account of a variable annuity with an AIR of 4% had actual net earnings of 8% in March, the April payment will be higher than the March payment. *The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. B)I and III. D) minimum guaranteed death benefit. John is the annuitant in a variable plan, and Sue is the beneficiary. D)Dow Jones Industrial Average. C) insurance guarantee. "Variable Annuities: What You Should Know," Pages 67. A)II and IV. A)I and IV. Once annuitized, the number of annuity units does not vary. B)fixed in value until the holder retires. That can adversely affect your returns over the long term, compared with other types of investments. B)corporate stock. C)prime rate. D)the safety of the principal invested. B) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. All of the following are true about annuities EXCEPT: they have all the same characteristics as life insurance. Vaccine has decreased the incidence. The number of accumulation units can rise during the accumulation period. A registered representative's (RR) customer is speaking of a variable life insurance contract he owns. B)I and II &&& \underline{\underline{\$341,718}} Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. We also reference original research from other reputable publishers where appropriate. Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. It was a lump-sum purchase. Which Earns More: Variable or Fixed Annuities? An annuity is an agreement for one person or organization to pay another a series of payments. A)variable annuities may only be sold by registered representatives. required to be located off of the company's premises. Deferred Annuity Definition, Types, How They Work, What Is a Fixed Annuity? He earned the Chartered Financial Consultant designation for advanced financial planning, the Chartered Life Underwriter designation for advanced insurance specialization, the Accredited Financial Counselor for Financial Counseling and both the Retirement Income Certified Professional, and Certified Retirement Counselor designations for advance retirement planning. Explain what is meant by positive and negative P=525p2+65,326p185,000E=326p+185,000P=-525 p^{2}+65,326 p-185,000 \quad E=-326 p+185,000P=525p2+65,326p185,000E=326p+185,000. D) each annuity unit's value varies with time, but the number of annuity units is fixed. externalities. This describes which of the following annuities? Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. Suppose that 20%20 \%20% of their users are United States users who log on daily. The company's well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. B) value of annuity units. A) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero Who assumes the investment risk in a variable annuity contract? *Contributions to a nonqualified annuity are made with the owner's after-tax dollars. B) I and IV. The number of annuity units is fixed at the time of annuitization. Because this is not guaranteed, the policyowner bears the investment risk. A client has purchased a nonqualified variable annuity from a commercial insurance company. Once the contract is annuitized, monthly payments to the customer are: Variable annuity salespeople must register with all of the following EXCEPT: The features of variable deferred annuities are many. Reference: 12.3.3 in the License Exam. D)It cannot be determined until the April return is calculated. The original investment has grown to a value of $60,000. What will this transaction provide? C)II and IV. A client has purchased a nonqualified variable annuity from a commercial insurance company. There is no clear answer to this. B)It will be lower. C) The investor's concerns about taxes. D)Variable annuity contract with a discussion regarding legislative risk, A VA with its investments in the separate account subject to market risk would not align with the customer's objective. However, it does guarantee payments for life (mortality). You can learn more about the standards we follow in producing accurate, unbiased content in our. Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? Round to the nearest hundredth of a percentile. B) II and III The distribution of questions by topic is not intended to represent the 39) A variable annuity has the following guarantees: [PDF] Understanding your variable annuity UBS Variable annuities are long-term investment vehicles that with these securities as well insurance company and do not apply to the investment The holder of a variable annuity receives the largest monthly payments under which of the following payout options? The value of the separate account is now $30,000. *The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. C) Mutual fund portfolio consisting of blue chip stocks A) Life-only annuity If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will the tax liability to the IRS be? D) III and IV. C) III and IV. If the separate account of a variable annuity with an AIR of 4% had actual net earnings of 8% in March, the April payment will be higher than the March payment. When the annuitization option is selected, each payment represents both capital and earnings. the state banking commission. A separate account will invest in a number of different securities. VAs, blue chip mutual fund portfolios, ETFs and ETNs are all tied to market performance in some way and have risk characteristics that would not align in terms of suitability for this client. D)Municipal bonds. A variable annuity has two phases: an accumulation phase and a payout (annuitization) phase. B)Variable annuities. In a variable life annuity with 10-year period certain, a contract holder receives: C) with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed What type of annuity has a cash value that is based upon the performance of it's underlying investment funds? C)the number of annuity units is fixed, and their value remains fixed. Question #31 of 48Question ID: 606836 Which of the following statements regarding variable annuities are TRUE? The payout compared to the initial payout upon annuitization. Reference: 12.2.1 in the License Exam, Question #48 of 48Question ID: 606835 Reference: 12.1.4.2 in the License Exam. A) the investment portfolio is managed professionally. Question #28 of 48Question ID: 606821 For a retired person, which of the following investments would provide the greatest protection against inflation? The accumulation period of a variable annuity may continue for many years. When a variable annuity contract is annuitized, the number of annuity units is fixed. D)Any tax due is deferred. Question: The following are characteristics of a public conglomerate: I) It is designed to operate various divisions for the long run. The payout compared to last month's payout. B) the number of annuity units is fixed, and their value remains fixed. A) It will be higher. C) There is no tax as the withdrawal is considered return of capital. B) Life annuity with period certain D)an accounting measure used to determine payments to the owner of the variable annuity. A) Money market fund. If the annuitant should die during that time, any death benefit would be paid to a beneficiary designated by the annuitant at the time the annuity was purchased. "Variable Annuities: What You Should Know," Page 6. If in the following year, the S&P 500 declined by 5%, the annuities value would remain at $107,000 because gains are locked in each year. A) partially a tax-free return of capital and partially taxable. A) II and IV. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero *The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. A) each annuity unit's value is fixed, but the number of annuity units varies with time. Reference: 12.1.2.1.2 in the License Exam. Question #36 of 48Question ID: 606805 \hspace{7pt} b. January 444, to record the employers payroll taxes on the payroll to be paid on January 444. A) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. Dividing the funds available so as to fund 2 separate contracts, whether they be joint with last survivor or life income, would not be cost efficient for spouses. Indexed annuity owners receive credited interest tied to the fluctuations of the linked index An immediate annuity consists of a single premium An immediate annuity has a single premium. \hspace{10pt} \text{Sales salaries} & \$\hspace{5pt} 670,000 & \hspace{10pt} \text{Income tax withheld} & \$198,744\\ The number of accumulation units is always fixed throughout the accumulation period. C) such an annuity is designed to combat inflation risk. D) each annuity unit's value varies with time, but the number of annuity units is fixed. Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. With regard to a variable annuity, all of the following may vary EXCEPT: A) variable annuities offer the investor protection against capital loss. D)separate account may consist of mutual funds. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. All of the following characteristics are shared by both a mutual fund and a variable annuity's separate account EXCEPT: Annuity units are units of ownership when the contract is in the payout stage. A single lump-sum investment is made, and payments begin immediately, since the investor has purchased annuity units. Since the client is older than 59 at the time of distribution, the additional 10% penalty tax is not incurred. B) The policyowner. You can tailor the income stream to suit your needs. Your client owns a variable annuity contract with an AIR of 4%. Question #15 of 48Question ID: 606804 \hspace{10pt} Federal unemployment (employer only), 0.8%0.8\%0.8%. C) Unit refund life option A) taxed at a reduced rate. A customer, who has contributed to an IRA and to an employer matching 401(k) plan continuously for many years, wants to purchase an annuity contract to add additional monthly income once retired. D) I and III. *Since this is a nonqualified annuity (with no tax deduction), the client pays taxes only on the growth portion or, in this case, $10,000. Transcribed image text: 6. D) variable annuities may only be sold by registered representatives. Reference: 12.1.2.1.1 in the License Exam. *A variable annuity is a security and must be registered with the SEC, not FINRA. D) tax free. An accumulation unit in a variable annuity contract is: A)an accounting measure used to determine the contract owner's interest in the separate account. Therefore, ordinary income taxes will apply to the entire $10,000. The value of an annuity unit varies from month to month according to the performance of the separate account in comparison to the assumed interest rate. B) suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract In the case of deferred annuities, this is often referred to as the accumulation phase. D) The fact that periodic payments into the contract may increase or decrease. Over the following year, the stock fund has a 10% return, and the bond fund has a 5% return. Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both insurance and securities licenses. A variable annuity is a type of annuity contract the value of which can vary based on the performance of an underlying portfolio of sub accounts. Premiums made into the annuity purchase accumulation units. How Good of a Deal Is an Indexed Annuity? B) a variable annuity contract is not required to be sold by prospectus because it is an insurance contract He originally invested $29,000 4 years ago; it now has a value of $39,000. He makes the following four statements, all of which are true EXCEPT An individual who purchases a Life annuity is given protection against: the risk of living longer than expected The type of annuity that can be purchased with one monetary deposit is called a (n) Immediate annuity N purchases an annuity by making payments in an amount no less than $100 quarterly. During the accumulation phase, the number of accumulation units will increase as additional money is invested. Your 65-year-old client owns a nonqualified variable annuity. Annuities due are a type of annuity where payments are made at the beginning of each payment period. The fixed annuities, indexed annuities, and variable annuities are some of the major types of annuities, of which one may find immediate annuities and deferred annuities. \hspace{7pt} a. December 303030, to record the payroll. C) III and IV A variable annuity is a type of annuity contract in which the value can vary based on the performance of an u . If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. A) Fixed Annuity B) variable annuities. Reference: 12.3.2.4 in the License Exam. Universal variable life policies Future annuity payments will vary according to the separate account's performance. A) defined contribution plans. Once a customer annuitizes a variable annuity, which of the following statements are TRUE? This guideline has been prepared for use by Federal agencies. II. C) 3000. B)value of annuity units.