the following are all characteristics of variable annuities except:

Universal variable life policies are ins. C)municipal bonds. Reference: 12.3.3 in the License Exam. The number of annuity units is fixed at the time of annuitization. B)each annuity unit's value varies with time, but the number of annuity units is fixed. Brainstorm a list of criteria by which you would select and prioritize projects. Your answer, It will be higher., was correct!. Anthony Battle is a CERTIFIED FINANCIAL PLANNER professional. is required by the Securities Act of 1933. All of the following statements concerning a variable annuity are correct EXCEPT: D) The fact that periodic payments into the contract may increase or decrease. Reference: 12.3.2.1 in the License Exam. How Good of a Deal Is an Indexed Annuity? This tax deferral is also true of 401(k) s and IRAs; however, unlike these products, there are no limits on the amount one can put into an annuity. B)part earnings and part cost basis B)cost of living. Money in a variable annuity is invested in a fundlike a mutual fund but one open only to investors in the insurance companys variable life insurance and variable annuities. Can I Borrow from My Annuity for a House Down Payment? Any withdrawals you make prior to the age of 59 may also be subject to a 10% tax penalty. How Are Nonqualified Variable Annuities Taxed? Your answer, waiver of premium, was correct!. An example would be if a life annuity with 10-year period certain contract holder died after 5 years, payments would continue for 5 more years to the beneficiary and then stop. B)I and III. The growth portion is taxed as a capital gain. 3. This customer has no spouse or dependents, which negates the value of the death benefit. Which is it? In a variable life annuity with 10-year period certain, a contract holder receives: All of the following statements about variable annuities are true EXCEPT: Your answer, a minimum rate of return is guaranteed., was correct!. C)It will be higher. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. D)with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed, With guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is not guaranteed because payments stop when the annuitant has received an amount equal to the principal account value or the contract term ends. must provide full and fair disclosure. Fixed period annuities A fixed period annuity pays an income for a specified period of time, such as ten years. Are Variable Annuities Subject to Required Minimum Distributions? Fixed annuities typically earn at a lower, stable rate. The upside was the possibility of higher returns during the accumulation phase and a larger income during the payout phase. Question #16 of 48Question ID: 606807 through (l), indicate whether the proper answer is a debit or a credit. Meanwhile, options like an annuity can provide a guaranteed income during, With a deferred annuity, you make a one-time payment to the insurance. The fund is kept within an IHT protected pension trust and can be passed down using a spousal bypass trust (SBT) can be used with personal pension plans to p Any purchase of securities will contain an element of risk. Her agent recommended she choose a variable annuity as a safe haven for the funds. Please sign in to access member exclusive content. Your client has $50,000 to invest. What Are the Biggest Disadvantages of Annuities? The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? \hspace{5pt}\text{Expense}&&\text{Credit}&\text{Debit}\\ A customer has a nonqualified variable annuity. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. D)Dow Jones Industrial Average. C)III and IV. CAV would consider the date from which interest begins to accrue on the bond (the dated date), the bond's maturity date, and the bonds original offering yield. C)3800. Here is how guaranteed lifetime annuities work. A)Fixed annuity contract with a discussion regarding purchasing power risk The accumulation unit's value is used to calculate the total value of the account. Reference: 12.1.2 in the License Exam. The payout compared to last month's payout. D)Investment risk. D)money market funds. Contributions to a nonqualified variable annuity are not tax deductible. a. A variable annuity is both an insurance and a securities product. 4. Single premium annuities A single premium annuity is an annuity funded by a single payment. Her intent was to use the funds for the down payment on a house after graduation. Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies. Reference: 12.1.1 in the License Exam. "Variable Annuities: What You Should Know," Pages 67. Reference: 12.1.4.2 in the License Exam. 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? [C]The portfolio is professionally managed. For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. [B]The holders may vote to change investment objectives. a variable annuity does not guarantee an earnings rate of return. Reference: 12.2.1 in the License Exam. Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. When the second party dies, all payments cease. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? C. variable annuities are classified as insurance products. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. used for the investment of funds paid by contract holders. This factor is used to establish the dollar amount of the first annuity payment. All of the following are characteristics of Variable Annuity contracts EXCEPT The possibility of higher returns and greater income than fixed annuities, but there's also a risk that the account will fall in value Lifetime annuities A lifetime annuity provides income for the remaining life of a person (called the annuitant). Your 65-year-old client owns a nonqualified variable annuity. He originally invested $50,000 four years ago. Is required by the Securities Act of 1933, 4. This recommendation is: B)corporate stock. With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? required to be located off of the company's premises. This would not align with the couple's criteria for coverage as long as they both live. Which of the following statements regarding variable annuities are TRUE? When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. The time period depends on how often the income is to be paid. What is her total tax liability? B)100% taxable. 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. 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. Advantages And Disadvantages Of Adjustable Life, Case Study: Cimb-Principal Asset Management Berhad. b. D) unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. 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 his client. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: Your answer, changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices., was correct!. A prospectus for a variable annuity contract: 1. Must precede every sales presentation. required to be located off of the company's premises. An investor owning which of the following variable annuity contracts would hold accumulation units? Which of the following recommendations would best meet the customer profile? Immediate life annuity with 10-year period certain. Based on the client's profile, which of the following would be the best recommendation? by jmacewe, . D)I and III. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? Bear in mind that between the numerous feessuch as investment management fees,mortality fees, and administrative feesand charges for any additional riders, a variable annuitysexpenses can quickly add up. Are you having trouble answering the question All of the following are characteristics of a variable annuity, except:? Your answer, Variable annuities., was correct!. Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. The separate account is NOT likely to invest in: The earnings on dollars invested into a variable annuity accumulate tax-deferred, which is why variable annuities are popular products for retirement accumulation. D)I and IV, Universal variable life policies are insurance company products that should be purchased primarily for the insurance features they offer rather than as an investment. A guaranteed period commits the insurance company to continue payments after the owner dies to one or more designated beneficiaries; the payments continue to the end of the stated guaranteed periodusually 10 or 20 years (measured from when the owner started receiving the annuity payments). Qualified annuities A qualified annuity is one used to invest and disburse money in a tax-favored retirement plan, such as an IRA or Keogh plan or plans governed by Internal Revenue Code sections 401(k), 403(b) or 457. You dont have to worry about it anymore. they have all the same characteristics as life insurance An Immediate Annuity is designed to provide each of the following features, EXCEPT: The creation of an estate Your client has a large sum of money to invest from the proceeds of the sale of his home. An accumulation unit in a variable annuity contract is: Your answer, an accounting measure used to determine the contract owner's interest in the separate account., was correct!. If a 42-year-old customer has been depositing money in a variable annuity for 5 years, and he plans to stop investing but has no intention of withdrawing any funds for at least 20 years, he is holding: Your answer, accumulation units., was correct!. Your customer, still working, informs you that she will be funding a VA you have recommended from 2 sources: a refinancing of her primary home where she will be able to draw out equity that has built up since it was purchased 15 years ago, and cashing out another VA that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. D) The ordinary income on the proceeds over the cost basis plus 10% of the net gain (if any) if Sue is younger than 59- years old. Must provide full and fair disclosure, 2. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? Question #41 of 48Question ID: 606801 Reference: 12.3.2.1 in the License Exam. When money is deposited into the annuity, it is purchasing accumulation units. C) The entire amount is taxed as ordinary income, because it is not life insurance. A)the yield is always higher than mortgage yields. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? The number of accumulation units is always fixed throughout the accumulation period. The holder of a VA receives the largest monthly payments under which of the following payout options? contract. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. VA contracts must be sold by prospectus due to the characterization of the separate accounts as securities, which must be registered under the Securities Act of 1933 & the Investment Co. Act of 1940. If you need to withdraw money from the account because of a financial emergency, you may face surrender fees. D)suggest to the client that perhaps a loan or refinancing his vacation home might be a better way to fund the contract purchase. In general, annuities have the following features. The growth portion is taxed as a capital gain. Variable annuity contracts were devised to help investors keep pace with inflation. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: Your client owns a variable annuity contract with an AIR of 4%. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. vote for the investment adviser. When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. Reference: 12.1.2 in the License Exam, Question #21 of 48Question ID: 606812 An investor who purchases a fixed annuity contract assumes purchasing-power risk. D)the rate of return is determined by the underlying portfolio's value. D)the safety of the principal invested. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. \text{Income statements accounts:}&&&\\ If a 42-year-old customer has been depositing money in a variable annuity for 5 years, and he plans to stop investing but has no intention of withdrawing any funds for at least 20 years, he is holding: A client has purchased a nonqualified variable annuity from a commercial insurance company. have investment risk that is assumed by the investor 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. B)a majority vote from the shareholders is required to change the investment objectives. Compound Accreted Value (CAV) of a municipal bond is used as the starting point in determining the value of a zero coupon bond. In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. Variable annuities must be registered with: A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. The growth portion is subject to a 10% penalty. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. Among annuities, variable annuities differ from fixed annuities, which provide a specific and guaranteed return. Some state statutes and court decisions also protect some or all of the payments from those annuities. B)4200. Required fields are marked *. Reference: 12.1.2 in the License Exam. D)II and III. D) The investment risk is shared between the insurance company and the policyowner. Reference: 12.3.1 in the License Exam. Life annuity has the largest payout because less risk is assumed by the insurance company; there is no beneficiary in the event the annuitant dies. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. Question #40 of 48Question ID: 606800 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. Question #44 of 48Question ID: 606797 A)II and IV. All of the following statements about variable annuities are true EXCEPT: What is the taxable consequence of this withdrawal to your client? An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: B) the yield is always higher than bond yields, C) the yield is always higher than mortgage yields, D) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. You can learn more about the standards we follow in producing accurate, unbiased content in our. Balancesheetaccounts:AssetLiabilityOwnersequity:CapitalDrawingIncomestatementsaccounts:RevenueExpenseIncreaseCreditCreditCreditDecreaseCredit(j)CreditNormalBalanceDebit. As part of the registration requirements, a prospectus must be filed & distributed to prospective investors. In contrast to mutual funds and other investments made with aftertax money, with annuities there are no tax consequences if owners change how their funds are invested. D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. If the customer takes a withdrawal of $10,000, what are the tax consequences? His objective is monthly income that he can receive after he retires to supplement his small pension and Soc Sec benefits. Nonqualified annuities A nonqualified annuity is one purchased separately from, or outside of, a taxfavored retirement plan. The most important consideration in purchasing a VA is to be aware that benefit payments will fluctuate with the investment performance of the separate account. Reference: 12.2.1 in the License Exam. There are many categories of annuities. You can buy an annuity with either a lump sum or a series of payments, and the accounts value will grow accordingly. A)exempt from taxes Variable annuity salespeople must register with all of the following EXCEPT: Variable annuity salespeople must be registered with FINRA and the state insurance department. Find out how you can intelligently organize your Flashcards. The growth of the annuitys value and/or the benefits paid does not depend directly or entirely on the performance of the investments the insurance company makes to support the annuity. As the name implies, the investment performance of a variable annuity's portfolio (separate account) can vary, and the investor bears the risk of any potential decline in its value. For each of the items (a) Reference: 12.1.4 in the License Exam. However, it does guarantee payments for life (mortality). Please select the correct language below. A prospectus for a variable annuity contract: C)earnings only and taxable Your answer, Life annuity., was correct!. Once the contract is annuitized, monthly payments to the customer are: A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. B. variable annuities offer the investor protection against capital loss. Azanswer team is here with the correct answer to your question. She may choose to receive monthly payments for the rest of her life. Your customer in his early 30s has received a modest inheritance from a relative. "Variable Annuities: What You Should Know," Page 6.

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