A life with period certain contract guarantees payments for a specified number of years to a named beneficiary if the annuitant dies during that time. vote for the investment adviser. This chapter was updated on 15 December, 2005. B) the rate of return is determined by the underlying portfolio's value. Question #41 of 48Question ID: 606801 A) variable payments for 10 years, followed by fixed payments for life. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. Each of the remaining statements are true. B)IRAs. A)There is no tax as the withdrawal is considered return of capital. Most annuities will not allow you to withdraw additional funds from the account once the payout phase has begun. Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. A) I and II. Once annuitized, the number of annuity units does not vary. This compensation may impact how and where listings appear. The tax on this amount is $3,000. D) 100% tax deferred. They are also not considered suitable for anyone who anticipates needing a lump sum within a short time frame to fund other endeavors. B)Life annuity with period certain. A) The entire amount is taxed as ordinary income, because it is not life insurance. An annuitant assumes the investment risk of a variable annuity and is not protected by the insurance company from capital losses. D) reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. *A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. C)not suitable because a lifetime income rider is only for someone who is already retired B)Value of each annuity unit each month. B) Age 78, retired for 20 years, lives comfortably and wants to leave all liquid assets to children Question #15 of 48Question ID: 606804 Reference: 12.3.1 in the License Exam. 8 annuities provide a guaranteed rate of return, whereas annuities provide conservative to aggressive investments whose rates of return are not guaranteed. These include white papers, government data, original reporting, and interviews with industry experts. C) 100% tax free. D)the rate of return is determined by the underlying portfolio's value. B)It will be lower. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. is required by the Securities Act of 1933. A 60-year-old individual, nearing retirement who has both IRAs and a 401k in place, is comfortable with market risk associated with the stock market, and has a lump sum in cash available to fund the annuity 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. However, they are protected by state guaranty associations in the event that the insurance company providing the product goes out of business. B) the client may vote for the board of directors or board of managers. C)suitable due to the death benefit features of a variable annuity. A) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero D) minimum guaranteed death benefit. Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. D) I and IV. Therefore, ordinary income taxes will apply to the entire $10,000. A trend is formed from non-repetitive actions of people. A) 4000. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? C)the number of annuity units is fixed, and their value remains fixed. Home; About. Following the transition to T+1 in the U.S. markets, Commission staff will continue to work with industry leaders, public interest advocates, investors and other regulators to assess the future feasibility of a T+0 settlement standard cycle, and seek to identify ways to overcome the challenges associated with such a move, as articulated in the . The most suitable option and one considered effective for married couples is a single joint and last survivor contract. A) The fact that the annuity payment may increase or decrease. *Contributions to a nonqualified variable annuity are not tax deductible. Reference: 12.1.2 in the License Exam. If the account is annuitized, the investor has chosen a payout option. *When money is deposited into the annuity, it is purchasing accumulation units. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. D) Capital gains tax on earnings exceeding basis. *An immediate annuity has no accumulation period. Periodic payment deferred annuity. D) the payout plans provide the client income for life. d) What is the probability that a user is from the United States, given that he or she logs on every day? How is the distribution taxed? C) Mutual fund portfolio consisting of blue chip stocks Variable annuities were introduced in the 1950s as an alternative to fixed annuities, which offer a guaranteedbut often lowpayout during the annuitization phase. B) a variable annuity contract is not required to be sold by prospectus because it is an insurance contract Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. Your client has $50,000 to invest. D) II and IV. Variable annuities must be registered with: 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. 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. This customer has no spouse or dependents, which negates the value of the death benefit. Nicks Enterprises has purchased a new machine tool that will allow the company to improve the efficiency of its operations. B)I and III. Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions. B) II and III. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. A) Fixed annuities. 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. (The exception is the fixed income annuity, which has a moderate to high payout that rises as the annuitant ages). An individual retirement annuity is an investment vehiclesimilar to an individual retirement accountthat is offered by insurance companies. A 1 The applicant and possibly the agent initial any changes made. C) each annuity unit's value and the number of annuity units vary with time. This makes a total of $4,000 tax and penalty paid on the random withdrawal. *Accumulation units represent units of ownership in a life insurance company's separate account when the contract is in the accumulation stage. 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. What is the annual cash flow generated from the new machine? You have 4 clients each expressing interest in a variable annuity contract. *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. C)none of these. Reference: 12.3.3 in the License Exam, Question #34 of 48Question ID: 606834 Word bank:Fixed, Variable Fixedannuities provide a guaranteed rate of return, whereas Variableannuities provide conservative to aggressive investments whose rates of return are not guaranteed. III) A hierarchy of corporate staff evaluates divisions' plans and performance. The owner of a variable annuity has all of the following rights EXCEPT the right to vote: a. for the board of trustees b. to change the separate account's investment objective c. for distributing income and capital gains d. for dissolution of the trust c. for distributing income and capital gains. A client has purchased a nonqualified variable annuity from a commercial insurance company. In the case of deferred annuities, this is often referred to as the accumulation phase. The accumulation unit's value is used to calculate the total value of the account. The number of accumulation units can rise during the accumulation period. Post navigation D)II and III. They offer broad diversification in the securities market and potential growth, all while using the power of tax deferral. A) number of annuity units. The entire amount is taxed as ordinary income. A) variable annuities offer the investor protection against capital loss. B) variable annuities. If one purchases an annuity for a set price, the issuing company would invest the funds and hold them until they are supposed to be disbursed, generally based on the owner's age. Licensed to sell Variable Annuities in the following state(s): FL, TX . C)earnings only and taxable D) 4200. A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as This factor is used to establish the dollar amount of the first annuity payment. D)variable annuities offer the investor protection against capital loss. A)an accounting measure used to determine the contract owner's interest in the separate account. B) taxed as ordinary income. As of March 03, 2023, had a relative dividend yield of % compared to the industry median of %. Determine whether the following events are independent or dependent. a. The amount of the purchase payments that go into the account may be less than you paid because fees were taken out of the purchase payments. vote on proposed changes in investment policy. B)Fixed annuity contract with a discussion regarding timing risk *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. A) A variable annuity Assuming that the payroll for the last week of the year is to be paid on January 444 of the following fiscal year, journalize the following entries: d. Each month the payment will increase, decrease, or remain the same as the previous month's payment . Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. D) I and IV. U.S. Securities and Exchange Commission. Therefore only a fixed annuity could be considered as suitable. And, unlike a fixed annuity, variable annuities do not provide any guarantee that you will earn a return on your investment. B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? Single payment deferred annuity. If your 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized, what are the consequences of this action? Sub accounts and mutual funds are conceptually. Which of the following is characteristic of variable annuities? However, the web version (cat. guarantees payments for a certain period of time. Contributions to an IRA may be tax deductible, depending on the individual's earnings and participation in a company-sponsored qualified retirement plan. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. a variable annuity does not guarantee an earnings rate of return. C) insurance companies keep variable annuity funds in separate accounts from other insurance products. Prudential Retirement Security Annuity VI is a group variable annuity (GVA) issued by Prudential Retirement Insurance and Annuity Company (PRIAC) which utilizes a Separate Account offered B) prime rate. The money paid in will be returned tax free, but the earnings portion will be taxed as ordinary income. How is the distribution taxed? A)Purchasing power risk. A customer has a nonqualified variable annuity. If the customer takes a withdrawal of $10,000, what are the tax consequences? Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. A) the investment portfolio is managed professionally. Based on the clients profile which of the following would be the best recommendation? The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. The growth portion is taxed as a capital gain. D) I and IV In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. Variable Annuities. B) with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually Over the past five years, 's dividend yield has averaged % per year. D)all return of cost basis and nontaxable, Annuitized payments from a variable annuity are viewed for tax purposes as part earnings and part cost basis. B)I and II What Are the Distribution Options for an Inherited Annuity? *Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. A) each annuity unit's value is fixed, but the number of annuity units varies with time. 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. C) Unit refund life option This recommendation is: D) unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. *The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. A)Fixed annuity contract with a discussion regarding purchasing power risk e) Are From the United States and Log on every day independently? D) value of accumulation units. \hspace{10pt} Medicare, 1.5%1.5\%1.5% Reference: 12.3.2.1 in the License Exam. C) suitable regardless of funding sources Based on the information given in the question, the VA recommendation would not be suitable. Every annuity has some characteristics in common. A) Fixed Annuity A) II and IV. The original investment has grown to a value of $60,000. who needs access to the sum invested at later time. If the data is normally distributed with standard deviation$198, find the percent of vacationers who spent less than $1,200 per day. A) Only during the payout period. Question #11 of 48Question ID: 606816 B) The policyowner. This guideline has been prepared for use by Federal agencies. A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. B) fixed in value until the holder retires. If at all you go deeper, then you will find a wide range of annuity products from a variety of companies. 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? D)Municipal bonds. *Once a variable annuity is annuitized, the accumulation units are converted into a fixed number of annuity units. If an insurance holder dies sooner than expected, the insurance company will have to pay the death benefit sooner. D) II and IV. B) A 30 year old construction worker recently unemployed who wants to invest his severance pay amounting to 9 months salary. B)corporate stock. Therefore, ordinary income taxes will apply to the entire $10,000. A guaranteed lifetime annuity promises to pay the owner an income for the rest of their life. The AG49-A Revisions A) Any tax due is deferred. D) I and IV. Since , has paid out quarterly dividends ranging from $0.00 to $0.00 per share. The accumulation unit's value is used to calculate the total value of the account. Lifetime vs. fixed period annuities C) 10 years of variable payments. Since the client is older than 59 at the time of distribution, the additional 10% penalty tax is not incurred. The downside was that the buyer was exposed to market risk, which could result in losses. The investor purchased accumulation units. Her intent was to use the funds for the down payment on a house after graduation. variable An immediate annuity consists of a Single Premium T has an annuity that guarantees an income payment for the rest of his life. B) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. A) Money market fund. However, a discussion should occur regarding the risks that are associated with a fixed annuity; purchasing power risk. *The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. B)100% taxable. This would not align with the couple's criteria for coverage as long as they both live. (primary needs). A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic pay- ments to you, beginning either immediately or at some future date. B)changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. Of the total payroll for the last week of the year, $30,000\$30,000$30,000 is subject to unemployment compensation taxes. This cloud model is composed of five essential characteristics, three service models, and four deployment models. B)Two-thirds of the withdrawal is taxable as ordinary income. A) two people are covered and payments continue until the second death. This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. A)II and III. John is the annuitant in a variable plan, and Sue is the beneficiary. Variable annuities gave buyers a chance to benefit from rising markets by investing in a menu of mutual funds offered by the insurer. Once annuitized, the number of annuity units does not vary. C)none of these. C) A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. Complete a blank sample electronically to save yourself time and money. C)such an annuity is designed to combat inflation risk. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. A) The policy provides a minimum guaranteed death benefit. Once a customer annuitizes a variable annuity, which of the following statements are TRUE? A) defined contribution plans. A)I and IV. C) insurance guarantee. An accumulation unit in a variable annuity contract is: All of the following are true about annuities EXCEPT: they have all the same characteristics as life insurance. 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. \hspace{10pt} \text{Warehouse salaries} & 110,000 & \hspace{10pt} \text{Social security tax withheld} & 51,714\\ She may choose to receive monthly payments for the rest of her life. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. C) early annuity phase-in B) The death benefit cannot ever be more than the guaranteed benefit. *Distributions from a nonqualified plan represent both a return of the original investment made in the plan with after-tax dollars (a nontaxable return of capital) and the income from that investment. A)II and IV. B)I and III. The growth portion is taxed as a capital gain. Periodic payments are not a consideration because normally the payments into an annuity are level or in a lump sum.