For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. Reference: 12.3.4 in the License Exam. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. To comply with Regulation SP, a brokerage firm is required to do all of the following EXCEPT: A) deliver an annual notice of its information collecting and sharing policies to all customers. C) III and IV. A) defined contribution plans. Reference: 12.3.3 in the License Exam. D) I and II. Each of the remaining statements are true. must provide full and fair disclosure. A security is any investment for profit with management performed by a third party. A) II and IV. must be filed with FINRA. A)not suitable A)There is no tax as the withdrawal is considered return of capital. Reference: 12.1.4.1 in the License Exam. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. When the second party dies, all payments cease. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? D) Capital gains tax on earnings exceeding basis. A registered representative's (RR) customer is speaking of a variable life insurance contract he owns. A) periodic payment immediate annuity. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. A single lump-sum investment is made, and payments begin immediately, since the investor has purchased annuity units. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. "Variable Annuities: What You Should Know," Page 3. Annuities: How to Find the Right One for You, How a Fixed Annuity Works After Retirement, Pros and Cons of Indexed Universal Life Insurance. The annuity unit's value represents a guaranteed return. Once annuitized, the number of annuity units does not vary. All of the following statements about variable annuities are true EXCEPT: The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? 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. An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. All of the following statements regarding variable annuities are true EXCEPT: A) variable annuities offer the investor protection against capital loss. D) an accounting measure used to determine the contract owner's interest in the separate account. 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. 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. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. What will this transaction provide? 's dividend yield was % last year. In this case, the investor is taking a lump-sum distribution before reaching age 59- and must pay an additional 10% penalty on the taxable amount. D) II and IV. *Of the four customer profiles the individual already making the maximum retirement account contributions available to him and wanting to minimize the tax consequences of being in a high income tax bracket would be most suitable for a VA recommendation. ($5,000) to a stock fund. 2019 Ted Fund Donors B) I and II. C) the client assumes the investment risk. A)each annuity unit's value and the number of annuity units vary with time. There are also immediate annuities, which begin paying income right away. A)I and IV. B) The death benefit cannot ever be more than the guaranteed benefit. B)Value of each annuity unit each month. II. Reference: 12.3.3 in the License Exam. A)Corporate debt securities used for the investment of funds paid by contract holders. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. Reference: 12.3.3 in the License Exam. A) Age 56, available cash to invest, makes the maximum retirement plan contributions to an existing IRA and 401(k) plan have investment risk that is assumed by the investor Question #14 of 48Question ID: 606823 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. *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. C)none of these. A)It will stay the same. Herpes Zoster has all of the following characteristics except: Group of answer choices. A)Fixed annuities. A) two people are covered and payments continue until the second death. C) There is no tax as the withdrawal is considered return of capital. C) single payment immediate annuity. FINRA. b. All of the following characteristics are shared by both a mutual fund and a variable annuity's separate account EXCEPT: A registered representative explaining variable annuities to a customer would be CORRECT in stating that: Which of the following statements regarding variable annuities are TRUE? \hspace{10pt} Federal unemployment (employer only), 0.8%0.8\%0.8%. In a variable annuity contract, the provision that guarantees the annuitant payments for life is called the: D) Variable Annuity. Find the per-day expense for one of these travelers who had a z-score of -1.6. c. A Bargain Times Vacation Blog writer claimed to have done this vacation for a cost of$710 per person. The client's investment objectives, tax bracket, investment experience and risk tolerance all align well with a VA recommendation. C)municipal bonds. A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. *Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. The original investment has grown to a value of $60,000. D) minimum guaranteed death benefit. When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). Essential Characteristics: A)variable annuities will protect an investor against capital loss. C)II and III. C) II and III. A) each annuity unit's value is fixed, but the number of annuity units varies with time. B) the number of annuity units is fixed, and their value remains fixed. B)I and III. B) variable annuities. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? B) be paid to any legal heirs as recognized by the annuitant's state of domicile. B) taxed as ordinary income. D)I and III. Variable annuities are designed to combat inflation risk. *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. They can be classified by: Nature of the underlying investment - fixed or variable Describe. B)I and III. C) I and IV. With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. C)III and IV. *The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. Reference: 12.3.4 in the License Exam, Chapter 16: U.S. Government and State Rules a, Chapter 17: Other SEC and SRO Rules and Regul, Chapter 15: Ethics, Recommendations, and Taxa, Chapter 13: Direct Participation Programs, Fundamentals of Financial Management, Concise Edition, Joe B. Hoyle, Thomas F. Schaefer, Timothy S. Doupnik, Carl Warren, James M Reeve, Jonathan E. Duchac. The value of accumulation and annuity units varies with the investment performance of the separate account. If the data is normally distributed with standard deviation$198, find the percent of vacationers who spent less than $1,200 per day. Table1. *A variable annuity payout is determined by comparing account performance with AIR, and this month's payout with last month's payout. a variable annuity does not guarantee payments for life. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. Reference: 12.1.4.1 in the License Exam. Upon John's death during the accumulation period, Sue takes a lump-sum payment. Which of the following is characteristic of variable annuities? Life with period certain will produce a smaller check for life because the insurance company will guarantee payments to a beneficiary for a certain period of time designated in the contract should the annuitant die within that period. C)Growth mutual funds B)100% taxable. The value of the annuity units varies. is required by the Securities Act of 1933. A) mortality guarantee. national origin, genetics, disability, age, veteran status, or any other characteristic protected by law. & \underline{\underline{\$1,014,000}} & \hspace{10pt} \text{U.S. savings bonds} & 30,420\\ Your customer, still working, informs you that she will be funding a variable annuity 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 variable annuity that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. D) 4500. Reference: 12.1.4.2 in the License Exam. Question #27 of 48Question ID: 606818 The number of accumulation units can rise during the accumulation period. C) a variable annuity contract does not guarantee any type of return Your customer, still working, informs you that she will be funding a variable annuity 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 variable annuity that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. C) be returned to the separate account. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. What Are Ordinary Annuities, and How Do They Work (With Example)? A) the investment portfolio is managed professionally. Question #12 of 48Question ID: 606814 The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. A) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. In the case of deferred annuities, this is often referred to as the accumulation phase. the agent must be licensed in both insurance and securities. Premiums made into the annuity purchase accumulation units. B) The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. D) a minimum of 10 years of variable payments, followed by additional variable payments for life. C) II and IV. D)an accounting measure used to determine payments to the owner of the variable annuity. 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) I and III. D) Joint and last survivor annuity. All of the following statements regarding variable annuities are true EXCEPT: A) waiver of premium A) A variable annuity U.S. Securities and Exchange Commission. A prospectus for a variable annuity contract: B) contact the issuer of the clients existing VA contract to facilitate the clients surrender of the contract. a variable annuity guarantees payments for life. Variable annuity salespeople must register with all of the following EXCEPT: Which of the following are defined as securities? The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. Reference: 12.2.1 in the License Exam. Her agent recommended she choose a variable annuity as a safe haven for the funds. A 10% penalty applies only if distributions begin before age 59-. 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 e) Are From the United States and Log on every day independently? *The customer, in the accumulation stage of the annuity, is holding accumulation units. Reference: 12.1.2 in the License Exam. A) Fixed annuities. who needs access to the sum invested at later time. Vaccine has decreased the incidence. An accumulation unit in a variable annuity contract is: These contracts come with high surrender charges. C) early annuity phase-in Immediate life annuity with 10-year period certain. How Good of a Deal Is an Indexed Annuity? 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. continues payments as long as one annuitant is alive. A)contact the issuer of the clients existing VA contract to facilitate the clients surrender of the contract. Question #32 of 48Question ID: 606815 As with most retirement account options, withdrawals before the age of 59 will result in a 10% tax penalty. covers more than one person. Of the total payroll for the last week of the year, $30,000\$30,000$30,000 is subject to unemployment compensation taxes. A) II and III. Which of the following statements regarding variable annuities are TRUE? Question #40 of 48Question ID: 606800 C) II and III. B) prime rate. C)The entire $10,000 is taxable as ordinary income. Based on the information given in the question, the VA recommendation would not be suitable. A customer has a nonqualified variable annuity. This guideline has been prepared for use by Federal agencies. For example, when paying rent, the rent payment (PMT) C) It will stay the same. The separate account performance compared to last month's performance. Annuity units are units of ownership when the contract is in the payout stage. 5 Q All of the following are characteristics of variable whole life EXCEPT the premium is level there is no guaranteed cash value there is no guaranteed minimum death benefit. Reference: 12.3.2.1 in the License Exam. D) payments continue until age 70-. 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? There is no clear answer to this. D)I and II. The downside was that the buyer was exposed to market risk, which could result in losses. 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. savingsbonds30,420Groupinsurance45,630$341,718\begin{array}{lrlr} For example, when paying rent, the rent payment (PMT) . a life insurance holder dies sooner than expected. A)number of annuity units. B)II and III. It's somewhat similar to a variable life insurance policy in that: You can choose how the product's value is invested. Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. A variable annuity is both an insurance and a securities product. 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? Reference: 12.1.2.1.1. in the License Exam. Annual depreciation on the machine is$12,000, and the tax rate of the company is 25%. *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. B) The policyowner. All of the following are true about annuities EXCEPT: they have all the same characteristics as life insurance. For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? Reference: 12.1.2.1.2 in the License Exam. A) 2800. Do whatever you want with a Learn About Annuities and Their Myths - F&G: fill, sign, print and send online instantly. D) not suitable because a lifetime income rider is only for someone who is already retired. Which of the following are defined as securities? D) accumulation shares. You can tailor the income stream to suit your needs. Reference: 12.1.2 in the License Exam, Question #39 of 48Question ID: 721469 Among annuities, variable annuities differ from fixed annuities, which provide a specific and guaranteed return. *A periodic payment immediate annuity is a contradiction in terms. Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies. A) 4000. are purchased primarily for their insurance features When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). It was a lump-sum purchase. None of the other investments listed here offer tax-deferred growth. Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. *The most important consideration in purchasing a variable annuity is to be aware that benefit payments will fluctuate with the investment performance of the separate account. An Immediate Annuity is designed to provide each of the following features, EXCEPT: The creation of an estate. B) life income *The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. The largest monthly check an annuitant can receive for the rest of his life is generated by a straight life (life income or life only) payout option. D) the number of annuity units becomes fixed when the contract is annuitized. Once a variable annuity has been annuitized: guarantees payments for a certain period of time. D) cost of living. D) I and IV. What Are the Biggest Disadvantages of Annuities? On any device & OS. If the account is annuitized, the investor has chosen a payout option. Try *Variable annuity 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 and the Investment Company Act of 1940. Variable annuities gave buyers a chance to benefit from rising markets by investing in a menu of mutual funds offered by the insurer. C)III and IV. Fixed Annuity: A fixed annuity is a type of annuity contract that allows for the accumulation of capital on a tax-deferred basis. 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. Reference: 12.1.1 in the License Exam. C) Age 40, currently unemployed When the first party dies, the annuity payment is made to the survivor. In March, the actual net return to the separate account was 8%. 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. A) be paid to a designated beneficiary. B)Capital gains taxation on the earnings withdrawn in excess of the owner's basis. This describes which of the following annuities? \hspace{10pt} Social security, 6%6\%6% on first $100,000\$100,000$100,000 of employee annual earnings Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. The value of the annuity units is fixed. regulated under both securities and insurance laws. 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. IV. 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: Single payment deferred annuity. A registered representative recommends a variable annuity with an income rider to a client. Based on this information the RR should: These contracts come with high surrender charges. Nicks Enterprises has purchased a new machine tool that will allow the company to improve the efficiency of its operations. the state banking commission. D) an accounting measure used to determine the contract owner's interest in the separate account. One of the following would achieve that objective but a suitability discussion regarding it's risk should also occur. B) II and IV. A)2800. 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. *During the accumulation phase, the number of accumulation units will increase as additional money is invested. D) Two-thirds of the withdrawal is taxable as ordinary income. The growth portion is taxed as ordinary income. D)It cannot be determined until the April return is calculated. D)separate account may consist of mutual funds. Variable annuity salespeople must register with all of the following EXCEPT: Your client owns a variable annuity contract with an AIR of 4%. B)II and III. "Variable Annuities: What You Should Know," Page 6. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero Can I Borrow from My Annuity for a House Down Payment? Which of the following is not a characteristic of a program module? C)I and IV. When a variable annuity contract is annuitized, the number of annuity units is fixed. The separate account is NOT likely to invest in: A) I and II. They are also riddled with fees, which can cut into profits. B) The investor's marital status. If the owner of a variable annuity dies during the accumulation period, any death benefit will: 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. C) Corporate bonds. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. C)prime rate. Reference: 12.3.2.4 in the License Exam. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Question #13 of 48Question ID: 606822 Immediate annuities purchase annuity units directly. D) It cannot be determined until the April return is calculated. What type of annuity has a cash value that is based upon the performance of it's underlying investment funds? The earnings are taxable but the cost basis is returned tax free. B) II and III 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. B) 100% taxable. A variable annuity's separate account is: A) used for the investment of monies paid by variable annuity contract holders B) separate from the insurance company's general investments C) operated in a manner similar to an investment company D) as much a security as it is an insurance product All of the above Of the four client profiles below which might be the best suited for a variable annuity recommendation? At the end of the year your account has a value of 10750. With regard to a variable annuity, all of the following may vary EXCEPT: Distribution can take place before or during any solicitation for sale. C) During the annuity period. Each of the remaining statements are true. The second phase is triggered when the annuity owner asks the insurer to start the flow of income, often referred to as the payout phase. Here is how guaranteed lifetime annuities work. C)3800. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: an annuitant dies sooner than expected. In this case, the investor is taking a lump-sum distribution before reaching age 59- and must pay an additional 10% penalty on the taxable amount. The separate account performance compared to an assumed interest rate. B) During the accumulation period. Reference: 12.3.1 in the License Exam. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: The creation of an estate. A) Fixed Annuity Sub accounts and mutual funds are conceptually. (primary needs). D)the rate of return is determined by the underlying portfolio's value. On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). A)the state banking commission. D) Any time before the accumulation period. This customer has no spouse or dependents, which negates the value of the death benefit. III) A hierarchy of corporate staff evaluates divisions' plans and performance. 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. At the end of the year, your account has a value of $10,750 ($5,500 in the stock fund and $5,250 in the bond fund), minus fees and charges. Question #47 of 48Question ID: 606813 The number of accumulation units can rise during the accumulation period. Accumulation Period of Fixed Annuities During this period, premiums are credited with interest which accumulates on a yearly basis. The number of annuity units rises once annuitization begins. During the accumulation phase, the number of accumulation units will increase as additional money is invested. He makes the following four statements, all of which are true EXCEPT Question #33 of 48Question ID: 606832 B) It will be lower. Qualified Longevity Annuity Contract (QLAC): Definition, Taxes, and Example, Present Value of an Annuity: Meaning, Formula, and Example, Future Value of an Annuity: What Is It, Formula, and Calculation, Calculating Present and Future Value of Annuities, Present Value Interest Factor of Annuity (PVIFA) Formula, Tables. IBM is a global brand and has its presence in 170 countries and operates . "Variable Annuities: What You Should Know," Page 10. D) I and II. The company's well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. Reference: 12.1.1 in the License Exam. *Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. D)I and III. All of the following are accurate statements to make to the client EXCEPT *A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. A variable annuity is a security and must be registered with the SEC, not FINRA. Final answer. C) III and IV. C) insurance guarantee. B)cost of living. B) I and III. Variable annuity Which of the following is characteristic of fixed annuities? C) A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. Reference: 12.1.4.1 in the License Exam. Round to the nearest hundredth of a percentile. A)a lifetime withdrawal benefit (LWB) or lifetime income benefit is generally in the form of a rider attached to the contract which will come at a cost to the annuitant The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. Question #20 of 48Question ID: 606808 Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). A) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. DR:BASSANT ADEL 9 QUIZ CH 6 Choose the correct answer: 1-Insurance policy benefits are classified on an insurance company's balance sheet as A. liabilities, because the insurance company may have to pay out the benefits B. assets, because policy benefits are valuable to the company C. liabilities, because customers may fall behind on their premium payments D. assets, because policy benefits . B)IRAs. *An immediate annuity has no accumulation period. D) I and III. B)variable annuities are classified as insurance products. Typically, they allow one withdrawal each year during the accumulation phase. Designed to protect against inflation. This factor is used to establish the dollar amount of the first annuity payment. Distributions to the annuitant will fluctuate during the payout period. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE?