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Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. (The exception is the fixed income annuity, which has a moderate to high payout that rises as the annuitant ages). No, annuities are not FDIC-insured as they are not bank products. Variable annuities are regulated by state insurance departments and the federal Securities and Exchange Commission. This customer has no spouse or dependents, which negates the value of the death benefit. To prevent this situation individuals can buy a guaranteed period with the immediate annuity. Weight the criteria. The separate account is NOT likely to invest in: The earnings on dollars invested into a variable annuity accumulate tax-deferred, which is why variable annuities are popular products for retirement accumulation. B. suitable regardless of funding sources, D. suitable is she has enough equity in the home to fund the VA without cashing out the other VA contract. Options. A)defined contribution plans. Her intent was to use the funds for the down payment on a house after graduation. Reference: 12.2.1 in the License Exam. IncreaseDecreaseNormalBalanceBalancesheetaccounts:AssetCreditLiabilityCreditOwnersequity:CapitalCreditDrawingIncomestatementsaccounts:RevenueCredit(j)ExpenseCreditDebit\begin{array}{lccc} For an investor, which of the following is the MOST important factor in determining the suitability of a VA investment? C)prime rate. withdraw funds without any tax consequences. B)I and III. Once annuitized, the number of annuity units does not vary. approve changes in the plan portfolio.3. As part of the registration requirements, a prospectus must be filed & distributed to prospective investors. B)100% taxable. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? You dont have to worry about it anymore. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. How Are Nonqualified Variable Annuities Taxed? D)the safety of the principal invested. C)III and IV Reference: 12.1.4.1 in the License Exam. One of the following would achieve that objective but a suitability discussion regarding it's risk should also occur. Variable annuities are designed to combat inflation risk. a variable annuity guarantees payments for life. by jmacewe, Question #31 of 48Question ID: 606836 a variable annuity does not guarantee payments for life. Many variable annuities invest the separate account in mutual funds. C) suitable due to the death benefit features of a variable annuity. Most variable annuities are structured to offer investors many different fund alternatives. Fixed annuities are regulated by state insurance departments. 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. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? In the first year, you decide to withdraw $50,000. B)I and II Reference: 12.1.4 in the License Exam. The customer, in the accumulation stage of the annuity, is holding accumulation units. For this potential advantage, the investor, rather than the ins. The number of annuity units rises once annuitization begins. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. Often used for retirement planning purposes, it is meant to provide a regular (monthly, quarterly, annual) income stream, starting at some point in the future. continues payments as long as all annuitants are alive. \hspace{5pt}\text{Drawing}&&&\\ The amount that is paid depends on the age of the annuitant (or ages, if its a two-life annuity), the amount paid into the annuity, and (if its a fixed annuity) an interest rate that the insurance company believes it can support for the length of the expected payout period. Question #35 of 48Question ID: 606810 Any withdrawals you make prior to the age of 59 may also be subject to a 10% tax penalty. C)Keogh plans. Question #42 of 48Question ID: 606830 "Variable Annuities: What You Should Know," Page 6. This can be particularly valuable if they are using a strategy called rebalancing, which is recommended by many financial advisors. In addition, an element of risk must be present. Variable annuities must be registered with: A prospectus for a variable annuity contract: When may a variable annuity account be surrendered? C)Money market fund. The separate account performance compared to last month's performance. The accumulation unit's value is used to calculate the total value of the account. 3. People who own an immediate annuity (that is, who are receiving money from an insurance company), are afforded some protection from creditors. The # of accumulation units can rise during the accumulation period, 3. 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. A)II and III 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. Registration with FINRA is de factor registration with the SEC; no registration is required by the state banking commission. The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? D)I and III. co. products that should be purchased primarily for the ins. B)part earnings and part cost basis Question #11 of 48Question ID: 606816 Usually the term annuity relates to a contract between an individual and a life insurance company. Required fields are marked *. Introducing Cram Folders! However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. Your answer, Variable annuities., was correct!. A)II and IV. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? The # of annuity units is fixed at the time of annuitization, 4. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. Your client has $50,000 to invest. \text{Income statements accounts:}&&&\\ Your customer in his early 30s has received a modest inheritance from a relative. The most popular type of variable annuity is a deferred annuity. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. is required by the Securities Act of 1933. Your answer, It will be higher., was correct!. When the first party dies, the annuity payment is made to the survivor. A life annuity is an insurance product that features a predetermined periodic payout amount until the death of the annuitant. Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. For anyone who may need access to the sum invested at a later time, a VA would not be considered a suitable recommendation. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. Future annuity payments will vary according to the separate account's performance. \hspace{5pt}\text{Expense}&&\text{Credit}&\text{Debit}\\ A)2800. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. For this potential advantage, the investor, rather than the insurance company, assumes the investment risk. An individual retirement annuity is an investment vehiclesimilar to an individual retirement accountthat is offered by insurance companies. B)Universal variable life policy. VAs, blue chip mutual fund portfolios, ETFS & 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. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. D) There is no tax as the withdrawal is considered return of capital. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. B)II and III. Variable annuity salespeople must register with all of the following EXCEPT: Question #22 of 48Question ID: 606803 How to Rollover a Variable Annuity Into an IRA. Which of the following recommendations would best meet the customer profile? Contributions to a nonqualified variable annuity are not tax deductible. A)Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. Generally, a life only contract pays the most per month because payments cease at the annuitant's death. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. What Are the Distribution Options for an Inherited Annuity? In recent years, annuity companies have created various types of floors that limit the extent of investment decline from an increasing reference point. The growth portion is subject to a 10% penalty. Moreover, annuity benefits that pass to beneficiaries dont go through probate and arent governed by the annuity owners will. A prospectus for a variable annuity contract: B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero used for the investment of funds paid by contract holders. Changes in payments on a variable annuity correspond most closely to fluctuations in the: Once a customer annuitizes a variable annuity, which of the following statements are TRUE? Which of the following statements regarding variable annuities are TRUE? Second, equity-indexed annuities don't typically include reinvested dividends when calculating index. Designed to protect against inflation. 5. Can I Borrow from My Annuity for a House Down Payment? An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: Your answer, changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices., was correct!.