Ch. 5 Annuities Quiz

What is the primary purpose of an annuity?

• To protect against premature death

• To provide a steady stream of lifetime income

• To provide a death benefit upon the insured's death

• To accumulate funds for education

How does an annuity differ from life insurance?

• An annuity provides a benefit upon death of the insured

• An annuity creates an estate

• An annuity pays a death benefit

• An annuity protects against living too long

Who is the owner of an annuity contract?

• The individual or person named in the contract to potentially receive benefits

• The individual whose life the contract is based upon

• The individual who controls the contract and is responsible for making payments

• The individual who assumes ownership of the annuity upon the death of the annuitant

What is the accumulation period of an annuity?

• The period of time from the first deposit to the selection of a settlement option

• The period of time during which taxes are deferred

• The period of time when the annuitant receives lifetime income

• The period of time when annuity payments are made

What is the difference between an immediate annuity and a deferred annuity?

• An immediate annuity pays benefits within 1 year from the issue date

• A deferred annuity pays benefits within 1 year from the issue date

• An immediate annuity has a longer accumulation period

• A deferred annuity has a longer accumulation period

What happens to the cash value of an annuity during the accumulation period?

• It is used to purchase life insurance

• It grows tax deferred

• It is paid out as a lump sum

• It is subject to income tax and a penalty

What is the payout option that provides an annuity for as long as the annuitant lives?

• Life Income with Refund

• Joint Life

• Life Income Period Certain

• Life Income Joint & Survivor

What is the classification of an annuity that guarantees a minimum fixed interest rate?

• Market-Value Adjustment Annuity

• Variable Annuity

• Indexed Annuity

• Fixed Annuity

What is the tax treatment of a qualified annuity?

• Contributions are not tax deductible and distributions are tax-free

• Contributions are tax deductible and distributions are taxable

• Contributions are tax deductible and distributions are tax-free

• Contributions are not tax deductible and distributions are taxable

What is a common business use of annuities?

• Funding nonqualified deferred compensation plans

• Funding education expenses

• Purchasing life insurance

• Providing long-term care benefits