Immediate life annuity. A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. D) minimum guaranteed death benefit. The company's well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. A) I and II. Question #45 of 48Question ID: 606795 *The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. C) A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. In deciding whether to put money into a variable annuity versus some other type of investment, its worth weighing these pros and cons. He makes the following four statements, all of which are true EXCEPT The investor has already paid tax on the contributions but the earnings have grown tax-deferred. Essential Characteristics: A) The fact that the annuity payment may increase or decrease. C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. D) I and III. C) There is no tax as the withdrawal is considered return of capital. A) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. 222. C)with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually Which of the following is characteristic of variable annuities? b. B) The entire $10,000 is taxable as ordinary income. The value of accumulation and annuity units varies with the investment performance of the separate account. 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. What Are the Risks of Annuities in a Recession? That can adversely affect your returns over the long term, compared with other types of investments. Variable annuity salespeople must register with all of the following EXCEPT: B) 0. B) suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract Each of the remaining statements are true. A)2800. 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 Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. B) The policyowner. An annuity is a continuous stream of equal periodic payments from one party to another for a specified period of time to fulfill a financial obligation. Your client owns a variable annuity contract with an AIR of 4%. D) A 50 year old individual with $50,000 cash to invest who has already made the maximum contributions to an IRA and the 401(k) plan at his place of employment and would like to minimize some of the tax consequences of his currently high tax bracket. B)Fixed annuity contract with a discussion regarding timing risk The annuity unit's value represents a guaranteed return. B)corporate stock. B)It will be lower. B)a minimum rate of return is guaranteed. Licensed to sell Variable Annuities in the following state(s): FL, TX . D)each annuity unit's value is fixed, but the number of annuity units varies with time. When may a variable annuity account be surrendered? C) Corporate bonds. A)number of annuity units. C) I and IV. What is the taxable consequence of this withdrawal to your client? Question #38 of 48Question ID: 606798 Annuity death benefits are generally paid in a lump sum. A) A variable annuity Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies. C) each annuity unit's value and the number of annuity units vary with time. The value of the annuity units is fixed. *A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. When the annuitization option is selected, each payment represents both capital and earnings. When the second party dies, all payments cease. A) the investment portfolio is managed professionally. A) periodic payment immediate annuity. Question #11 of 48Question ID: 606816 Determine whether the following events are independent or dependent. Her agent recommended she choose a variable annuity as a safe haven for the funds. must provide full and fair disclosure. The tax on this is $2,800 ($10,000 x 28%). An investor who purchases a fixed annuity contract assumes purchasing-power risk. 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. U.S. Securities and Exchange Commission. C) a variable annuity contract does not guarantee any type of return B) the state insurance department. Drives - are hardwired characteristics of the brain that correct deficiencies or maintain an internal equilibrium by producing emotions to energize individuals. A)II and IV. C)III and IV. Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. "Variable Annuities: What You Should Know," Page 3. Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. They are also not considered suitable for anyone who anticipates needing a lump sum within a short time frame to fund other endeavors. Reference: 12.2.1 in the License Exam. The separate account is used for both variable life insurance and variable annuity investments. 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. Which of the following is NOT an accurate statement concerning a variable life insurance contract? If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? Annuities due are a type of annuity where payments are made at the beginning of each payment period. They can be classified by: Nature of the underlying investment - fixed or variable PGIM Fixed Income, a division of PGIM Inc., an SEC-registered investment adviser and a business unit of Prudential Financial, Inc. is seeking a Portfolio Risk Surveillance Analyst. Your 65-year-old client owns a nonqualified variable annuity. A) Only during the payout period. EEO IS THE LAW . A variable annuity is a long term investment issued by an insurance company that can help you grow your money, take income in retirement and pass on your wealth. C) II and III. B)Two-thirds of the withdrawal is taxable as ordinary income. B)suitable regardless of funding sources Reference: 12.3.3 in the License Exam. Which of the following recommendations would best meet the customer profile? Question #43 of 48Question ID: 606809 When the second party dies, all payments cease. IV. As of March 03, 2023, had a relative dividend yield of % compared to the industry median of %. Reference: 12.1.2 in the License Exam. All of the following characteristics are shared by both a mutual fund and a variable annuity's separate account EXCEPT: The original investment has grown to a value of $60,000. A variable annuity has two phases: an accumulation phase and a payout (annuitization) phase. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. D) Variable Annuity. D)Investment risk. a life insurance holder dies sooner than expected. 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. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. A variable annuity is a long term investment issued by an insurance company that can help you grow your money, take income in retirement and pass on your wealth. Upon John's death during the accumulation period, Sue takes a lump-sum payment. C) taxed as ordinary income only to the extent of earnings. A variable annuity is a type of annuity contract in which the value can vary based on the performance of an u . C) The investor's concerns about taxes. All of the following are accurate statements to make to the client EXCEPT C)earnings only and taxable Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. Reference: 12.3.2.1 in the License Exam. At the end of the year your account has a value of 10750. A) each annuity unit's value is fixed, but the number of annuity units varies with time. There is a guaranteed minimum interest rate, normally amounting to between 1 and 3 percent. "Variable Annuities: What You Should Know," Pages 67. Your client has $50,000 to invest. are purchased primarily for their insurance features A client has purchased a nonqualified variable annuity from a commercial insurance company. *A variable annuity may only be surrendered during the accumulation period. C) single payment immediate annuity. B)Universal variable life policy. D) Keogh plans. Usually the term "annuity" relates to a contract between an individual and a life insurance company. B) II and III B)a majority vote from the shareholders is required to change the investment objectives. D) 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. A) mutual fund units. D) the payout plans provide the client income for life. The accumulation unit's value is used to calculate the total value of the account. It was a lump-sum purchase. A) 4000. 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. Variable annuity salespeople must be registered with FINRA and the state insurance department. While variable annuities have greater potential for earnings, since their interest rate rises and falls with their underlying investments, they can lose money. For a retired person, which of the following investments would provide the greatest protection against inflation? The beneficiary is taxed at ordinary income rates during the year the lump sum is received. The anti-money laundering rules for insurance companies highlight that each insurance company - like other financial institutions subject to anti-money laundering program requirements - must develop a risk-based anti-money laundering program that identifies, assesses, and mitigates any risks of money laundering, terrorist financing, and other Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. Variable annuities should be considered long-term investments due to the limitations on withdrawals. These contracts cover both lives and will continue to make payments until the last spouse dies. the agent must be licensed in both insurance and securities. D) I and III. Based only on these facts, the variable annuity recommendation is The tax on this is $2,800 ($10,000 x 28%). 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) Any tax due is deferred. D) an accounting measure used to determine the contract owner's interest in the separate account. 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. Since the client is older than 59 at the time of distribution, the additional 10% penalty tax is not incurred. 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. $63,000 b.$51,000 c. $18,000 d.$6,000. *An immediate annuity has no accumulation period. the state insurance commission. B) fixed payments for 10 years, followed by variable payments for life. A customer has a nonqualified variable annuity. B)Value of each annuity unit each month. If you need to withdraw money from the account because of a financial emergency, you may face surrender fees. A. 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. C) The portion of the premium invested in the insurance company's general account is used to provide for the minimum guaranteed amount of the death benefit. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. Which Earns More: Variable or Fixed Annuities? A)an accounting measure used to determine the contract owner's interest in the separate account. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. III. Question #20 of 48Question ID: 606808 Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies. Variable annuity Which of the following is characteristic of fixed annuities? A universal variable life policy should be purchased primarily for its insurance features, not its investment features. a. D) 4500. do not have a separate account The number of accumulation units is always fixed throughout the accumulation period. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. Expert Answer. C) During the annuity period. \hspace{10pt} \text{Sales salaries} & \$\hspace{5pt} 670,000 & \hspace{10pt} \text{Income tax withheld} & \$198,744\\ A) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. U.S. Securities and Exchange Commission. D) 100% tax deferred. B)II and III. Once the contract is annuitized, monthly payments to the customer are: In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. The payout compared to the initial payout upon annuitization. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). 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. *Contributions to a nonqualified variable annuity are not tax deductible. There are two elements that contribute to the value of a variable annuity: the principal, which is the amount of money you pay into the annuity, and the returns that your annuitys underlying investments deliver on that principal over the course of time. 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. During the . C)annuity units. A) II and IV. have investment risk that is assumed by the investor Variable Annuities. A trend is formed from non-repetitive actions of people. B) IPO. \hspace{7pt} b. December 303030, to record the employers payroll taxes on the payroll to be paid on December 313131. D) the number of annuity units becomes fixed when the contract is annuitized. B)Tax-free municipal bonds The value of the separate account is now $30,000. The value of these units varies with the performance of the separate account. Annuities due are a type of annuity where payments are made at the beginning of each payment period. B)part earnings and part cost basis 6102..55.001) is being updated on an ongoing basis. Your client owns a variable annuity contract with an AIR of 4%. This factor is used to establish the dollar amount of the first annuity payment. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. There is no clear answer to this. (primary needs). A) partially a tax-free return of capital and partially taxable. 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 tax on this amount is $3,000. Nicks Enterprises has purchased a new machine tool that will allow the company to improve the efficiency of its operations. D)suitable due to the relative safety of the investment. Question #31 of 48Question ID: 606836 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. Many variable annuities invest the separate account in mutual funds. During payout, distributions will fluctuate due to performance in the separate account. \hspace{10pt} Medicare, 1.5%1.5\%1.5% The features of variable deferred annuities are many. The payout compared to last month's payout. C)prime rate. A security is any investment for profit with management performed by a third party. A guaranteed lifetime annuity promises to pay the owner an income for the rest of their life. & \underline{\underline{\$1,014,000}} & \hspace{10pt} \text{U.S. savings bonds} & 30,420\\ A)the yield is always higher than mortgage yields. The funds in an annuity are off-limits to creditors and other debt collectors. On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). C) II and IV. 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 A There are no surrender fees B Guaranteed death benefit C Tax deferred growth D Training Explanations Which of the following is not a characteristic of a program module? During the accumulation phase, you make purchase payments. *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. B)value of annuity units. View full document. A joint life with last survivor annuity: Question #27 of 48Question ID: 606818 D) The fact that periodic payments into the contract may increase or decrease. C) II and IV. D)II and IV. D) Variable annuities. D) I and II. Periodic payment deferred annuity. Most annuities will not allow you to withdraw additional funds from the account once the payout phase has begun. 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. A) be paid to a designated beneficiary. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. The growth portion is taxed as ordinary income. \hspace{10pt} State unemployment (employer only), 3.8%3.8\%3.8% A prospectus for a variable annuity contract: C) 10 years of variable payments. A variable annuity's separate account is: 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. a variable annuity guarantees payments for life. All of the following statements regarding variable annuities are true EXCEPT: Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. The remainder of the premium is invested in the separate account. C) Tax-free municipal bonds Distributions from such an annuity are computed on a LIFO basis with the income taxed first. C) II and III. The number of annuity units rises once annuitization begins. Contributions to an IRA may be tax deductible, depending on the individual's earnings and participation in a company-sponsored qualified retirement plan. B) allow customers to opt out of sharing of financial information with certain nonaffiliated firms. The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. Reference: 12.3.1 in the License Exam, Question #30 of 48Question ID: 606833 A 10% penalty applies only if distributions begin before age 59-. D) an accounting measure used to determine the contract owner's interest in the separate account. Question #24 of 48Question ID: 606806 His objective is monthly income that he can receive after he retires to supplement his small pension and social security benefits. Since the client is older than 59 at the time of distribution, the additional 10% penalty tax is not incurred. C)suitable due to the death benefit features of a variable annuity. C) III and IV. 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. A) waiver of premium D) Joint and last survivor annuity. 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. 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. B)I and IV. A)not suitable *Payments from a variable annuity depend on the securities' value in the separate account's underlying investment portfolio. D) be paid to the issuing company to complete the plan. A) Ordinary income tax on earnings exceeding basis. Here is how guaranteed lifetime annuities work. D) reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. B) Corporate debt securities A)equity funds. 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. A)each annuity unit's value and the number of annuity units vary with time. Classifying annuities There are many categories of annuities. About Us Question #32 of 48Question ID: 606815 B)I and II During the accumulation phase, the number of accumulation units will increase as additional money is invested. Variable annuities operate in similar ways to . However, a discussion should occur regarding the risks that are associated with a fixed annuity; purchasing power risk. 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 your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? 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. Reference: 12.3.3 in the License Exam. Once annuitized, the number of annuity units does not vary. B) Municipal bonds. The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. *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. Reference: 12.3.1 in the License Exam. In March, the actual net return to the separate account was 8%. CDs insured by the FDIC. Universal variable life policies The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. If an insurance holder dies sooner than expected, the insurance company will have to pay the death benefit sooner. Designed to protect against inflation. If the customer takes a withdrawal of $10,000, what are the tax consequences? D) Variable annuity. C)the number of annuity units is fixed, and their value remains fixed. C) 10% penalty plus payment of ordinary income tax on all funds withdrawn exceeding basis. 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. can be sold by someone with only an insurance license C) with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed A) Ordinary income tax on earnings exceeding basis. B) II and IV. A)II and IV. D)suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract, Based on the information given in the question, the VA recommendation would not be suitable. Deal with mathematic Math is all about solving equations and finding the right answer. Reference: 12.3.2.1 in the License Exam. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. *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. *Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. Reference: 12.3.1 in the License Exam. B) I and II. C) be returned to the separate account. The earnings are taxable but the cost basis is returned tax free. \hspace{7pt} a. December 303030, to record the payroll. D) III and IV. Transcribed image text: 6. A) A 75 year old women, who is a former executive retired for over ten years who wants to preserve as much capital as she can to leave to her two grandchildren. A) I and III. C) Unit refund life option Based on this information the RR should: An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. On an annual basis, the machine will produce 20,000 units with an expected selling price of $10, prime costs of$6 per unit, and a fixed cost allocation of $3 per unit. The number of annuity units is fixed. B) the number of annuity units is fixed, and their value remains fixed. C)not suitable because a lifetime income rider is only for someone who is already retired A) Fixed Annuity A) be paid to a designated beneficiary. Round to the nearest hundredth of a percentile. Diagnosis is made by punch biopsy. Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. A)100% tax free. D) Variable annuities. However, because the client is not yet age 59- when making the withdrawal, he also pays a 10% penalty, or $1,000. D)II and III. What will this transaction provide? Question #41 of 48Question ID: 606801 Describe. Fixed annuities, on the other hand, provide a guaranteed return. B) II and III. III) A hierarchy of corporate staff evaluates divisions' plans and performance. When the annuitization option is selected, each payment represents both capital and earnings. b. B) life income B. national origin, genetics, disability, age, veteran status, or any other characteristic protected by law. D)separate account may consist of mutual funds. C) insurance guarantee. Of the four client profiles below which might be the best suited for a variable annuity recommendation? 's dividend yield was % last year. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. A) partially a tax-free return of capital and partially taxable. Reference: 12.1.2 in the License Exam, Question #21 of 48Question ID: 606812 For example, when paying rent, the rent payment (PMT) A) variable payments for 10 years, followed by fixed payments for life. A Variable Annuity has which of the following characteristics? B) with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually The number of annuity units varies. A) a variable annuity contract will provide a fluctuating monthly check upon the annuitization of the contract 8 annuities provide a guaranteed rate of return, whereas annuities provide conservative to aggressive investments whose rates of return are not guaranteed. Early withdrawal is either removal of funds from a fixed-term investment before the maturity date, or the removal of funds from a tax-deferred investment account or retirement savings account before a prescribed time. C)III and IV D) The investment risk is shared between the insurance company and the policyowner. Carefully look at your options when choosing an annuity. 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. Reference: 12.3.3 in the License Exam. A variable annuity is a combination of 2 products: an insurance contract and a mutual fund.