B) 0. The growth portion is taxed as a capital gain. A variable annuity is a type of annuity contract in which the value can vary based on the performance of an u . 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. Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Eric W. Noreen, Peter C. Brewer, Ray H Garrison. Round to the nearest hundredth of a percent. A 10% penalty applies only if distributions begin before age 59-. Variable annuities involve underlying equity investments in a separate account. The customer, in the accumulation stage of the annuity, is holding accumulation units. D)the safety of the principal invested. Which of the following is not a characteristic of a program module? 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. These contracts come with high surrender charges. Once a customer annuitizes a variable annuity, which of the following statements are TRUE? must precede every sales presentation. The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. Question #31 of 48Question ID: 606836 The funds in an annuity are off-limits to creditors and other debt collectors. The number of annuity units is fixed at the time of annuitization. EEO IS THE LAW . A joint life with last survivor annuity: The number of accumulation units is always fixed throughout the accumulation period. 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. That can adversely affect your returns over the long term, compared with other types of investments. Question #44 of 48Question ID: 606797 Reference: 12.3.3 in the License Exam. A) 4000. Question #12 of 48Question ID: 606814 Question #47 of 48Question ID: 606813 During the accumulation phase, the number of accumulation units will increase as additional money is invested. Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. A) I and II. The earnings on dollars invested into a variable annuity accumulate tax deferred, which is why variable annuities are popular products for retirement accumulation. a. A)variable annuities may only be sold by registered representatives. B) It will be lower. B)a majority vote from the shareholders is required to change the investment objectives. A customer, who has contributed to an IRA and to an employer matching 401(k) plan continuously for many years, wants to purchase an annuity contract to add additional monthly income once retired. (Check all that apply.) PDF Variable Annuities: What You Should Know - SEC D)II and III. A)IPO. C)not suitable because a lifetime income rider is only for someone who is already retired \hspace{7pt} b. December 303030, to record the employers payroll taxes on the payroll to be paid on December 313131. The remainder of the premium is invested in the separate account. As part of his profile he stresses that he has had uncomfortable experiences in the past with the stock market and is not inclined to invest in anything that is based on stock market performance and would opt for principal protection instead. *When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. A) Ordinary income tax on earnings exceeding basis. Variable Annuity: Definition and How It Works, Vs. Fixed Annuity II. It is the starting point of motivation because they generate emotions. B) The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. The time period depends on how often the income is to be paid. Variable annuity Which of the following is characteristic of fixed annuities? A client has purchased a nonqualified variable annuity from a commercial insurance company. A) each annuity unit's value is fixed, but the number of annuity units varies with time. C) It will stay the same. If the annuitant dies during the accumulation period, his/her beneficiary will receive the promised annuity payments. Reference: 12.3.1 in the License Exam, Question #30 of 48Question ID: 606833 A) I and III. And, unlike a fixed annuity, variable annuities do not provide any guarantee that you will earn a return on your investment. The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. A)the number of annuity units becomes fixed when the contract is annuitized. B) Life annuity with period certain *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{7pt} a. December 303030, to record the payroll. C) taxed as ordinary income only to the extent of earnings. 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. A 45-year-old employed individual with no other retirement accounts in place vote on proposed changes in investment policy. Question #38 of 48Question ID: 606798 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. 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 Unit 12: Variable Annuities Flashcards | Chegg.com Variable annuity salespeople must register with all of the following EXCEPT: 7 - Annuities Flashcards | Quizlet Classifying annuities There are many categories of annuities. \hspace{10pt} Social security, 6%6\%6% on first $100,000\$100,000$100,000 of employee annual earnings Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. B)mutual fund units. do not have a separate account 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. B)Life annuity with period certain. A) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. C) II and III. With regard to a variable annuity, all of the following may vary EXCEPT: A variable annuity's separate account is: A separate account will invest in a number of different securities. Variable annuities must be registered with: *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. Distribution can take place before or during any solicitation for sale. C) Age 40, currently unemployed A) number of annuity units. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. However, because the client is not yet age 59- when making the withdrawal, he also pays a 10% penalty, or $1,000. 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 dissolutions of the trust for distributing income and capital gains. Upon John's death during the accumulation period, Sue takes a lump-sum payment. *Variable annuity contracts were devised to help investors keep pace with inflation. A) II and IV. Reference: 12.3.2.1 in the License Exam. D)I and II. C)Money market fund. B)FINRA. A security is any investment for profit with management performed by a third party. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. A)Corporate debt securities are purchased primarily for their insurance features Anthony Battle is a CERTIFIED FINANCIAL PLANNER professional. 11.1: Fundamentals of Annuities - Mathematics LibreTexts The beneficiary is taxed at ordinary income rates during the year the lump sum is received. A) I and IV. *During the accumulation phase, the number of accumulation units will increase as additional money is invested. 6102.0.55.001 - Labour Statistics: Concepts, Sources and Methods, Dec 2005 a variable annuity has which of the following characteristics A customer is receiving annuitized payments from a variable annuity. This makes a total of $4,000 tax and penalty paid on the random withdrawal. who needs access to the sum invested at later time. Flashcards - Securities and Tax - FreezingBlue D) periodic payment deferred annuity. A guaranteed lifetime annuity promises to pay the owner an income for the rest of their life. A)equity funds. A) The fact that the annuity payment may increase or decrease. A)not suitable Deferred Annuity Definition, Types, How They Work, What Is a Fixed Annuity? C)II and IV. Annual depreciation on the machine is$12,000, and the tax rate of the company is 25%. A)II and IV. B)Tax-free municipal bonds Which of the following is NOT an accurate statement concerning a variable life insurance contract? However, it does guarantee payments for life (mortality). A registered representative recommends a variable annuity with an income rider to a client. Carefully look at your options when choosing an annuity. && \hspace{10pt}\text{Group insurance} & \underline{45,630}\\ A) I and III. The offers that appear in this table are from partnerships from which Investopedia receives compensation. a variable annuity does not guarantee an earnings rate of return. An accumulation unit in a variable annuity contract is: Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. B) I and III. Variable Annuities | Investor.gov D) Variable annuity. B) accumulation units. A)There is no tax as the withdrawal is considered return of capital. C)number of accumulation units. A 3 Reference: 12.3.1 in the License Exam. He makes several statements regarding the contract. The owner of a variable annuity has all of the following rights EXCEPT A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. Suppose that 20%20 \%20% of their users are United States users who log on daily. Question #25 of 48Question ID: 606819 A) Dow Jones Industrial Average. B) The entire $10,000 is taxable as ordinary income. The value of the separate account is now $30,000. The number of annuity units is fixed at the time of annuitization. D) 4200. 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 . All of the following statements concerning a variable annuity are correct EXCEPT: A registered representative explaining variable annuities to a customer would be CORRECT in stating that: "Variable Annuities: What You Should Know," Page 3. When the first party dies, the annuity payment is made to the survivor. A client has purchased a nonqualified variable annuity from a commercial insurance company. B) payments continue until the death of the primary owner. 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)the state banking commission. C)Life annuity. Can I Borrow from My Annuity for a House Down Payment? Inflation-hedging, using both tax deferral combined with market growth potential, is made possible by variable annuities #. a variable annuity guarantees an earnings rate of return. C) suggest to the client that perhaps a loan or refinancing his vacation home might be a better way to fund the contract purchase. savingsbondsGroupinsurance$198,74451,71415,21030,42045,630$341,718, Tax rates assumed: 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. If the customer takes a withdrawal of $10,000, what are the tax consequences? D) I and IV. Her agent recommended she choose a variable annuity as a safe haven for the funds. A Variable Annuity has which of the following characteristics? D) Capital gains tax on earnings exceeding basis. B) taxed as ordinary income. B) A 30 year old construction worker recently unemployed who wants to invest his severance pay amounting to 9 months salary. It's somewhat similar to a variable life insurance policy in that: You can choose how the product's value is invested. C)none of these. Reference: 12.3.3 in the License Exam. The separate account is used for both variable life insurance and variable annuity investments. Fixed annuities typically earn at a lower, stable rate. Therefore, ordinary income taxes will apply to the entire $10,000. B)variable annuities are classified as insurance products. used to escrow late or otherwise delinquent premium payments. C)Keogh plans. With variable annuities policyholders can choose from a number of investment opportunities. D) Variable annuities. D)Any tax due is deferred. Universal variable life policies Therefore, ordinary income taxes will apply to the entire $10,000. can be sold by someone with only an insurance license Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. A) Fixed Annuity D)Joint and last survivor annuity. The tax on this is $2,800 ($10,000 x 28%). Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. Reference: 12.3.3 in the License Exam. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? U.S. Securities and Exchange Commission. \hspace{10pt} Federal unemployment (employer only), 0.8%0.8\%0.8%. D) be paid to the issuing company to complete the plan. If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? An investor who purchases a fixed annuity contract assumes purchasing-power risk. The client agrees to purchase the contract and informs the RR that he will be cashing out a VA he purchased 2 years ago to fund the new contract and will forward the check as soon as he receives it. D) I and II. When money is deposited into the annuity, it is purchasing accumulation units. A variable annuity is both an insurance and a securities product. A the safety of the principal invested B the yield is always higher than bond yields. B)Value of each annuity unit each month. No software installation. A 1 The applicant and possibly the agent initial any changes made. e) Are From the United States and Log on every day independently? A customer has a nonqualified variable annuity. a life insurance holder dies sooner than expected. Facebook reports that 70%70 \%70% of their users are from outside the United States and that 50%50 \%50% of their users log on to Facebook daily. Question #11 of 48Question ID: 606816 B)Universal variable life policy. The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. 10.1 This chapter addresses a number of ABS statistics relating to the economically active population which were not discussed elsewhere. *Annuity death benefits are generally paid in a lump sum. Fixed interest rates during the payout period The value of each accumulation unit varies: Daily Variable annuities have Variable interest rates and benefits All of the following statements are true regarding the interest rate guarantees of fixed annuities, EXCEPT: C)none of these. $63,000 b.$51,000 c. $18,000 d.$6,000. C)100% tax deferred. C)3800. A) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero B) The policyowner. 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. Outgoing personality with the ability to develop relationships (i.e., "People Person") and a sincere desire to help others Fearless, positive attitude, and willingness to be accountable for results Organized, detail-oriented, and excellent time-management skills A desire for continuous learning an annuitant dies sooner than expected. While a variable annuity has the benefit of tax-deferred growth, its annual expenses are likely to be much higher than the expenses of a typical mutual fund. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will the tax liability to the IRS be? C)such an annuity is designed to combat inflation risk. D) value of accumulation units. Prudential's businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, asset management, and real estate services. D)the rate of return is determined by the underlying portfolio's value. Reference: 12.3.4 in the License Exam. Annuities are complicated products, so that may be easier said than done. Underlying equity investments T, age 70, withdraws cash from a profit-sharing plan and purchases a Straight Life Annuity.