Reference: 12.1.4 in the License Exam. C. No paper. Her agent recommended she choose a variable annuity as a safe haven for the funds. D) It cannot be determined until the April return is calculated. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. Drives - are hardwired characteristics of the brain that correct deficiencies or maintain an internal equilibrium by producing emotions to energize individuals. Therefore, variable annuities must be registered with the state insurance commission and the Securities and Exchange Commission. 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. D) a variable annuity contract is subject to fluctuating values due to market fluctuations of the underlying separate accounts. A) Age 56, available cash to invest, makes the maximum retirement plan contributions to an existing IRA and 401(k) plan How is the distribution taxed? Question #35 of 48Question ID: 606810 B) the safety of the principal invested. What Are Ordinary Annuities, and How Do They Work (With Example)? a. Underlying equity investments T, age 70, withdraws cash from a profit-sharing plan and purchases a Straight Life Annuity. A)an accounting measure used to determine the contract owner's interest in the separate account. The features of variable deferred annuities are many. 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. Licensed to sell Variable Annuities in the following state(s): FL, TX . Fixed annuities, on the other hand, provide a guaranteed return. Premiums made into the annuity purchase accumulation units. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. C) the client assumes the investment risk. D)II and IV. When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). Question #12 of 48Question ID: 606814 A) III and IV. 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? A) I and II. Reference: 12.3.3 in the License Exam. *The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. D) be paid to the issuing company to complete the plan. An immediate annuity is designed to pay an income one time-period after the immediate annuity is bought. B)II and III. . He wants to ensure that the client, in addition to meeting suitability requirements, is aware of certain variable annuity contract characteristics. B) I and III. Do homework Doing homework can help you learn and understand the material covered in class. Your client owns a variable annuity contract with an AIR of 4%. For a retired person, which of the following investments would provide the greatest protection against inflation? As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. B) the number of annuity units is fixed, and their value remains fixed. A customer has a nonqualified variable annuity. D) Variable annuities. Upon John's death during the accumulation period, Sue takes a lump-sum payment. Reference: 12.2.1 in the License Exam. Once the contract is annuitized, monthly payments to the customer are: A) I and II A) two people are covered and payments continue until the second death. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: A)Joint tenants annuity. Variable annuities are designed to combat inflation risk. A)contact the issuer of the clients existing VA contract to facilitate the clients surrender of the contract. A)equity funds. A) variable payments for 10 years, followed by fixed payments for life. Annuities are similar to other forms of investing in that the owner invests money with the hope that it will gain in value, but annuities also come with higher fees than most mutual funds. Question #27 of 48Question ID: 606818 D)II and III. Question #42 of 48Question ID: 606830 *Waiver of premium is a benefit available on qualified life insurance contracts, usually in the form of a rider, which provides for the waiver of premium payments that fall due while the policyholder is totally disabled. The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? continues payments only as long as all annuitants are still alive. D)Dow Jones Industrial Average. *Variable annuity contracts were devised to help investors keep pace with inflation. Immediate annuities purchase annuity units directly. B) contact the issuer of the clients existing VA contract to facilitate the clients surrender of the contract. C) III and IV. A) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. A) taxed at a reduced rate. 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. D) I and III. EEO IS THE LAW . The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. Who assumes the investment risk in a variable annuity contract? A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. B) 0. must provide full and fair disclosure. Your 65-year-old client owns a nonqualified variable annuity. Many variable annuities invest the separate account in mutual funds. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. C)II and IV. Anthony Battle is a CERTIFIED FINANCIAL PLANNER professional. A) I and II. Salaries:SalessalariesWarehousesalariesOfficesalaries$670,000110,000234,000$1,014,000Deductions:IncometaxwithheldSocialsecuritytaxwithheldMedicaretaxwithheldU.S. B)Two-thirds of the withdrawal is taxable as ordinary income. 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 #11 of 48Question ID: 606816 A) Life-only annuity Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. A guaranteed death benefit guarantees that the beneficiary will receive a death benefit if the annuitant dies before the annuity begins paying benefits. Round to the nearest hundredth of a percent. D) I and III 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. B) 100% taxable. A customer is receiving annuitized payments from a variable annuity. On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). Annuities: How to Find the Right One for You, How a Fixed Annuity Works After Retirement, Pros and Cons of Indexed Universal Life Insurance. C)none of these. IBM is a global brand and has its presence in 170 countries and operates . 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. Contributions to a nonqualified annuity are made with the owner's after-tax dollars. The entire amount is taxed as ordinary income. B)each annuity unit's value varies with time, but the number of annuity units is fixed. When money is deposited into the annuity, it is purchasing accumulation units. Policyholders . 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. *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. One of the following would achieve that objective but a suitability discussion regarding it's risk should also occur. Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. \hspace{10pt} Federal unemployment (employer only), 0.8%0.8\%0.8%. As with all tax-deferred accounts, municipal bonds are not appropriate investments because interest earned on municipals is already tax exempt at the federal level. Fixed annuities typically earn at a lower, stable rate. Question #25 of 48Question ID: 606819 *A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. a variable annuity does not guarantee payments for life. A) complete all paper work to purchase the annuity contract and obtain the clients signature immediately. B)I and II A 3 D) II and IV. D) reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. D)money market funds. Of the four client profiles below which might be the best suited for a variable annuity recommendation? During the . 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. A) Fixed annuities. Lifetime vs. fixed period annuities The correct answer was: partially a tax-free return of capital and partially taxable. B) The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. A) periodic payment immediate annuity. Reference: 12.3.1 in the License Exam. *A variable annuity may only be surrendered during the accumulation period. B)Fixed annuity contract with a discussion regarding timing risk A)I and IV. D) II and IV. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. Question #44 of 48Question ID: 606797 A)variable annuities will protect an investor against capital loss. B) Corporate debt securities However, a discussion should occur regarding the risks that are associated with a fixed annuity; purchasing power risk. *BEST Suited for VA-Age 56, available cash to invest, maxes out IRA and 401(k) plan VA will be supplemental income, would not be suitable for cust. C) II and IV You have 4 clients each expressing interest in a variable annuity contract. Once a variable annuity has been annuitized: A the safety of the principal invested B the yield is always higher than bond yields. Based on the clients profile which of the following would be the best recommendation? C)The entire $10,000 is taxable as ordinary income. *The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. \hspace{7pt} b. January 444, to record the employers payroll taxes on the payroll to be paid on January 444. C) early annuity phase-in Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. D)each annuity unit's value is fixed, but the number of annuity units varies with time. A)III and IV. A) I and IV. C) Mutual fund portfolio consisting of blue chip stocks A) Capital gains taxation on the earnings withdrawn in excess of the owner's basis. Are Variable Annuities Subject to Required Minimum Distributions? Reference: 12.3.1 in the License Exam, Question #30 of 48Question ID: 606833 Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as D)an accounting measure used to determine payments to the owner of the variable annuity. A 32-year-old with a company-sponsored 401k plan who will need a lump sum soon to finance graduate school tuition The separate account performance compared to an assumed interest rate. A prospectus for a variable annuity contract: A)Fixed annuities. When the annuitization option is selected, each payment represents both capital and earnings. Question #45 of 48Question ID: 606795 B)a minimum rate of return is guaranteed. Variable annuities operate in similar ways to . *A variable annuity is a security and must be registered with the SEC, not FINRA. Reference: 12.1.2 in the License Exam, Question #21 of 48Question ID: 606812 A) two people are covered and payments continue until the second death. If this client is in the payout phase, how would his April payment compare to his March payment? B) variable annuities. 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. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: D) I and IV. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. A)defined contribution plans. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? C) payments continue for a pre-determined period of time. IV. His objective is monthly income that he can receive after he retires to supplement his small pension and social security benefits. C) insurance companies keep variable annuity funds in separate accounts from other insurance products. B) II and III. 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 annuity salespeople must be registered with FINRA and the state insurance department. Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. C) II and III. C) Corporate bonds. Fixed annuities. Each of the remaining statements are true. B)FINRA. Sample problems from Chapter 9. . 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. 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. approve changes in the plan portfolio. B) IPO. Reference: 12.1.4.1 in the License Exam. A) partially a tax-free return of capital and partially taxable. the state banking commission. D)the safety of the principal invested. A) The policy provides a minimum guaranteed death benefit. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). 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. B)suitable regardless of funding sources During the payout period, payments are based on a fixed number of annuity units established when the contract was annuitized. Based only on these facts, the variable annuity recommendation is *Once a variable annuity is annuitized, the accumulation units are converted into a fixed number of annuity units. II) It has an internal capital market wherein each division competes for funds. C) II and III. Deal with mathematic Math is all about solving equations and finding the right answer. C) The investor's concerns about taxes. A) partially a tax-free return of capital and partially taxable. 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 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. With variable annuities policyholders can choose from a number of investment opportunities. A guaranteed lifetime annuity promises to pay the owner an income for the rest of their life. For an insurance company, mortality risk turns out unfavorably if: Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. Investopedia requires writers to use primary sources to support their work. Your customer is interested in a variable annuity but is unclear on some of the details regarding different specifications and riders that can be attached to the contract. In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. c) Construct a contingency table showing all the joint and marginal probabilities. C)It will be higher. Which of the following statements is not true about the characteristics of a trend? *A variable annuity payout is determined by comparing account performance with AIR, and this month's payout with last month's payout. D) an accounting measure used to determine the contract owner's interest in the separate account. *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. As with most retirement account options, withdrawals before the age of 59 will result in a 10% tax penalty. All of the following statements about variable annuities are true EXCEPT: (The exception is the fixed income annuity, which has a moderate to high payout that rises as the annuitant ages). C) a variable annuity contract does not guarantee any type of return