A) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero The earnings are taxable but the cost basis is returned tax free. 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. All of the following are accurate statements to make to the client EXCEPT D) II and III. **Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. A prospectus for a variable annuity contract: D) Variable annuity. We also reference original research from other reputable publishers where appropriate. When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). Round to the nearest hundredth of a percentile. An annuity is an agreement for one person or organization to pay another a series of payments. A separate account will invest in a number of different securities. This describes which of the following annuities? Question #28 of 48Question ID: 606821 (primary needs). When the second party dies, all payments cease. The number of annuity units rises once annuitization begins. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. continues payments only as long as all annuitants are still alive. A joint-and-last-survivor annuity is a payout option where: It is innate and universal. This guideline has been prepared for use by Federal agencies. A)Purchasing power risk. Question #22 of 48Question ID: 606803 What is the taxable consequence of this withdrawal to your client? 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. A)II and IV. D)II and III. D)the safety of the principal invested. In deciding whether to put money into a variable annuity versus some other type of investment, its worth weighing these pros and cons. B) allow customers to opt out of sharing of financial information with certain nonaffiliated firms. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. D)each annuity unit's value is fixed, but the number of annuity units varies with time. B) I and III. B)corporate stock. A) A variable annuity A) number of annuity units. D) I and III Deal with mathematic Math is all about solving equations and finding the right answer. His objective is monthly income that he can receive after he retires to supplement his small pension and social security benefits. D) A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. Variable annuities are designed to combat inflation risk. Therefore, variable annuities must be registered with the state insurance commission and the Securities and Exchange Commission. The payout compared to the initial payout upon annuitization. The entire amount is taxed as ordinary income. The following are the characteristics or the hierarchy of a trend except A. Gigatrends C. Megatrends B. Macrotrends D. Nanotrends _____11. B) 100% taxable. Variable Annuities. The tax on this is $2,800 ($10,000 x 28%). If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? A) Age 56, available cash to invest, makes the maximum retirement plan contributions to an existing IRA and 401(k) plan 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. B) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. Question #38 of 48Question ID: 606798 Indexed annuity owners receive credited interest tied to the fluctuations of the linked index An immediate annuity consists of a single premium An immediate annuity has a single premium. All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: The annuity unit's value represents a guaranteed return. C) There is no tax as the withdrawal is considered return of capital. The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. Annuities are complicated products, so that may be easier said than done. However, a discussion should occur regarding the risks that are associated with a fixed annuity; purchasing power risk. Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. VAs, blue chip mutual fund portfolios, ETFs and ETNs are all tied to market performance in some way and have risk characteristics that would not align in terms of suitability for this client. He makes the following four statements, all of which are true EXCEPT Needs - are goal-directed forces that people experience. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? A) a minimum rate of return is guaranteed. Variable annuity Which of the following is characteristic of fixed annuities? Fixed Annuity, Retirement Annuities: Know the Pros and Cons. 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. *The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. B)changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. Reference: 12.3.1 in the License Exam, Question #30 of 48Question ID: 606833 A)II and IV. *The investor has already paid tax on the contributions but the earnings have grown tax-deferred. 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? *This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. A guaranteed lifetime annuity promises to pay the owner an income for the rest of their life. B) A 30 year old construction worker recently unemployed who wants to invest his severance pay amounting to 9 months salary. When the first party dies, the annuity payment is made to the survivor. II. Question #27 of 48Question ID: 606818 B) I and III. A. Variable annuities were introduced in the 1950s as an alternative to fixed annuities, which offer a guaranteedbut often lowpayout during the annuitization phase. C) Unit refund life option How does an indexed annuity differ from a fixed annuity? D) periodic payment deferred annuity. D)I and III. D) payments continue until age 70-. D)Investment risk. A)II and III. *VAs are less suitable for individuals who have not yet made maximum contributions to other retirement accounts such as IRAs and 401ks. *Contributions to a nonqualified annuity are made with the owner's after-tax dollars. An Immediate Annuity is designed to provide each of the following features, EXCEPT: The creation of an estate. She may choose to receive monthly payments for the rest of her life. Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both insurance and securities licenses. *Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. *If the separate account of a variable annuity with an AIR of 4% had actual net earnings of 8% in March, the April payment will be higher than the March payment. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. The number of annuity units rises once annuitization begins. The income was deferred from tax over the plan's life, so it is taxable as ordinary income once distributed. Reference: 12.2.1 in the License Exam. 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. Carefully look at your options when choosing an annuity. Your client owns a variable annuity contract with an AIR of 4%. Of the total payroll for the last week of the year, $30,000\$30,000$30,000 is subject to unemployment compensation taxes. A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. D) I and III. C) 10 years of variable payments. Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. Universal variable life policies All of the following statements regarding variable annuities are true EXCEPT: A) variable annuities offer the investor protection against capital loss. D)II and III. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. Salaries:SalessalariesWarehousesalariesOfficesalaries$670,000110,000234,000$1,014,000Deductions:IncometaxwithheldSocialsecuritytaxwithheldMedicaretaxwithheldU.S. The following changes have been incorporated into Special Publication 800145, as of the date indicated - . C)such an annuity is designed to combat inflation risk. B) fixed payments for 10 years, followed by variable payments for life. 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. With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. Variable annuities gave buyers a chance to benefit from rising markets by investing in a menu of mutual funds offered by the insurer. B) accumulation units. C) the yield is always higher than bond yields. Dividing the funds available so as to fund 2 separate contracts, whether they be joint with last survivor or life income, would not be cost efficient for spouses. It may be used by nongovernmental . 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 number of accumulation units can rise during the accumulation period. B) with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually D)money market funds. A) two people are covered and payments continue until the second death. C)3800. For a retired person, which of the following investments would provide the greatest protection against inflation? The value of the separate account is now $30,000. C)II and IV. 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. D) I and II. A) Fixed Annuity a variable annuity does not guarantee an earnings rate of return. *A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. A) I and III. An investor owning which of the following variable annuity contracts would hold accumulation units? 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. For this potential advantage, the investor, rather than the insurance company, assumes the investment risk. What Are the Distribution Options for an Inherited Annuity? A registered person recommends the purchase of a variable annuity to one of his clients. The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. B)each annuity unit's value varies with time, but the number of annuity units is fixed. With variable annuities policyholders can choose from a number of investment opportunities. 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. Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. Variable annuity salespeople must be registered with FINRA and the state insurance department. C)Mortality risk. have investment risk that is assumed by the investor Though there is no beneficiary designation during the annuitization, this is not an issue for this annuitant. D)Dow Jones Industrial Average. U.S. Securities and Exchange Commission. C) III and IV Single payment deferred annuity. However, it does guarantee payments for life (mortality). Anthony Battle is a CERTIFIED FINANCIAL PLANNER professional. B) Exchange traded Funds (ETFs) or Exchange traded Notes (ETNs) a variable annuity does not guarantee an earnings rate of return. The time period depends on how often the income is to be paid. \hspace{10pt} Federal unemployment (employer only), 0.8%0.8\%0.8%. D) a variable annuity contract is subject to fluctuating values due to market fluctuations of the underlying separate accounts. Her agent recommended she choose a variable annuity as a safe haven for the funds. Underlying equity investments T, age 70, withdraws cash from a profit-sharing plan and purchases a Straight Life Annuity. Determine whether the following events are independent or dependent. D)an accounting measure used to determine payments to the owner of the variable annuity. A)Joint tenants annuity. *Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. C) II and IV. On any device & OS. (Check all that apply.) Variable annuities should be considered long-term investments due to the limitations on withdrawals. Table1. B) The policyowner. a variable annuity guarantees payments for life. And, unlike a fixed annuity, variable annuities do not provide any guarantee that you will earn a return on your investment. A) III and IV. 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. B)value of annuity units. If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? D)the state insurance department. 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. During payout, distributions will fluctuate due to performance in the separate account. No software installation. C) The insurance company. Variable annuities operate in similar ways to . Which of the following is characteristic of variable annuities? 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. \hspace{10pt} \text{Office salaries} & \underline{234,000} & \hspace{10pt} \text{Medicare tax withheld} & 15,210\\ 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. A) taxed at a reduced rate. used to escrow late or otherwise delinquent premium payments. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps. C) a variable annuity contract does not guarantee any type of return Question #36 of 48Question ID: 606805 How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. D) None, because it is the proceeds from a life insurance company. C) II and III. the state insurance commission. a. a. A) complete all paper work to purchase the annuity contract and obtain the clients signature immediately. Final answer. A) a variable annuity contract will provide a fluctuating monthly check upon the annuitization of the contract \hspace{7pt} a. December 303030, to record the payroll. A) I and IV. Spartan Technology Services and Solutions Private Limited is a subsidiary of IBM (International Business Machines) Corporation. The figure below illustrates a six-month annuity with monthly payments. A) There is no risk in a variable annuity. C) 100% tax free. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. Assuming that the payroll for the last week of the year is to be paid on December 313131, journalize the following entries: You can buy an annuity with either a lump sum or a series of payments, and the accounts value will grow accordingly. C) II and III. A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic pay- ments to you, beginning either immediately or at some future date. An accumulation unit in a variable annuity contract is: B) the client may vote for the board of directors or board of managers. Many variable annuities invest the separate account in mutual funds. I. a variable annuity does not guarantee payments for life. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. Reference: 12.1.2.1.1 in the License Exam. 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. Question #26 of 48Question ID: 606811 There are two interest rates under fixed annuities. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. Annual depreciation on the machine is$12,000, and the tax rate of the company is 25%. B) The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. C) I and IV. C) early annuity phase-in B) the state insurance department. B) IPO. *As contributions are made with after-tax dollars, only the earnings generated are taxed on withdrawal. a life insurance holder lives longer than expected. A deferred annuity is an insurance contract that promises to pay the buyer a regular stream of income, or a lump sum, at some date in the future. You can tailor the income stream to suit your needs. The annuitized payments are viewed for tax purposes as 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) Universal variable life policy. B)reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. 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 . How Are Nonqualified Variable Annuities Taxed? Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. B) During the accumulation period. Then find the probability of the event. C) During the annuity period. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. What is her total tax liability? 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. Because this is not guaranteed, the policyowner bears the investment risk. What is the taxable consequence of this withdrawal to your client? *A variable annuity payout is determined by comparing account performance with AIR, and this month's payout with last month's payout. An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are Get Started. B) a variable annuity contract is not required to be sold by prospectus because it is an insurance contract C) number of accumulation units. C)Money market fund. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. A) periodic payment immediate annuity. \hspace{10pt} Medicare, 1.5%1.5\%1.5% C) I and III. II. C) the client assumes the investment risk. A)IPO. IBM Noida, Uttar Pradesh, India1 month agoBe among the first 25 applicantsSee who IBM has hired for this roleNo longer accepting applications. D) expense guarantee. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. D)Joint and last survivor annuity. About Us 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. D) Two-thirds of the withdrawal is taxable as ordinary income. D)value of accumulation units. A)equity funds. B)a minimum rate of return is guaranteed. B) 10% penalty plus payment of ordinary income tax on all funds withdrawn. Question #16 of 48Question ID: 606807 B) The entire $10,000 is taxable as ordinary income. Usually the term "annuity" relates to a contract between an individual and a life insurance company. This customer has no spouse or dependents, which negates the value of the death benefit. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. \hspace{10pt} State unemployment (employer only), 3.8%3.8\%3.8% CDs insured by the FDIC. A) a minimum rate of return is guaranteed. Clusters of vesicles in various stages. Question #44 of 48Question ID: 606797 B) a variable annuity contract is not required to be sold by prospectus because it is an insurance contract A)the number of annuity units becomes fixed when the contract is annuitized. PGIM Fixed Income has over $900 billion in assets under management across a broad array of fixed . They are more suitable for individuals who can fund the annuity with cash, want to supplement existing retirement benefits they have already funded, are comfortable with the market risk associated with a VA separate account portfolio and anticipate a long retirement. B) The policyowner. A) Only during the payout period. no. 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. These contracts come with high surrender charges. Variable annuities are designed to combat inflation risk. A) I and II Changes in payments on a variable annuity correspond most closely to fluctuations in the: I. 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. C) II and IV. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. 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. They are also not considered suitable for anyone who anticipates needing a lump sum within a short time frame to fund other endeavors. C)the invested money will be professionally managed according to the issuers' investment objectives. B) the number of annuity units is fixed, and their value remains fixed. A 3 The entire amount is taxed as ordinary income. Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? B) taxed as ordinary income. When a variable annuity contract is annuitized, the number of annuity units is fixed. A) mortality guarantee. 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 Based on this information the RR should: B)fixed in value until the holder retires. D) II and III. 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. An accumulation unit in a variable annuity contract is: A)an accounting measure used to determine the contract owner's interest in the separate account. Universal variable life policies 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. John is the annuitant in a variable plan, and Sue is the beneficiary. IV. II) It has an internal capital market wherein each division competes for funds. None of the other investments listed here offer tax-deferred growth. Since , has paid out quarterly dividends ranging from $0.00 to $0.00 per share. The offers that appear in this table are from partnerships from which Investopedia receives compensation. U.S. Securities and Exchange Commission. D) variable annuities may only be sold by registered representatives. The distribution of questions by topic is not intended to represent the 39) A variable annuity has the following guarantees: [PDF] Understanding your variable annuity UBS Variable annuities are long-term investment vehicles that with these securities as well insurance company and do not apply to the investment
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