Question 1

Which annuity provides for a built-in reduction of monthly payments after a specified event occurs?

Accepted Answer

A)  Joint annuity 
B)  Joint and last survivor annuity 
C)  Pure reduction annuity 
D)  Joint and one-half survivor annuity 
A)  Joint annuity 
B)  Joint and last survivor annuity 
C)  Pure reduction annuity 
D)  Joint and one-half survivor annuity

Question 2

Which of the following does not affect how monthly annuity benefit payments are calculated?

Accepted Answer

A)  Age 
B)  Sex 
C)  Amount premium the annuitant has paid 
D)  Number of years worked 
A)  Age 
B)  Sex 
C)  Amount premium the annuitant has paid 
D)  Number of years worked

Question 3

Ron Liven is a retiree receiving a monthly annuity payment. This year his annuity payment is $4,000 per month. Last year, it was $3,700 per month, and the year before it was $3,500. Ron does NOT know what his payment will be NEXT year. What type of annuity does he have?

Accepted Answer

A)  Fixed incremental increase 
B)  Installment refund 
C)  Cash refund 
D)  Variable annuity 
A)  Fixed incremental increase 
B)  Installment refund 
C)  Cash refund 
D)  Variable annuity

Question 4

The variable annuity:

Accepted Answer

A)  pays a fixed dollar amount for a variable length of time 
B)  pays an annuity to a variable number of people 
C)  overcomes the problem of inflation and the loss of purchasing power 
D)  accepts variable amounts of deposits on a periodic basis during the accumulation period 
A)  pays a fixed dollar amount for a variable length of time 
B)  pays an annuity to a variable number of people 
C)  overcomes the problem of inflation and the loss of purchasing power 
D)  accepts variable amounts of deposits on a periodic basis during the accumulation period

Question 5

Fixed dollar annuities are widely used as a hedge against inflation.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is false regarding the annuity contract?

Accepted Answer

A)  At the beginning of the accumulation phase, the annuitant irrevocably selects the distribution method for the liquidation phase. 
B)  There is considerable flexibility in choosing the length of the accumulation phase. 
C)  The liquidation period is a function of several factors including when the annuitant dies. 
D)  Generally, a longer accumulation period results in higher liquidation payments (all other things being equal). 
A)  At the beginning of the accumulation phase, the annuitant irrevocably selects the distribution method for the liquidation phase. 
B)  There is considerable flexibility in choosing the length of the accumulation phase. 
C)  The liquidation period is a function of several factors including when the annuitant dies. 
D)  Generally, a longer accumulation period results in higher liquidation payments (all other things being equal).

Question 7

Why do insurers use a different mortality table for annuity benefit calculations than they use for life insurance premium calculations?

Accepted Answer

A)  Annuities require more stringent underwriting than life insurance. 
B)  The average life expectancy of an annuity applicant is greater than that of a life insurance applicant. 
C)  The health status of annuity applicants is generally worse than that of life insurance applicants. 
D)  People with a greater-than-average likelihood of premature death are typically the ones who want to purchase annuities. 
A)  Annuities require more stringent underwriting than life insurance. 
B)  The average life expectancy of an annuity applicant is greater than that of a life insurance applicant. 
C)  The health status of annuity applicants is generally worse than that of life insurance applicants. 
D)  People with a greater-than-average likelihood of premature death are typically the ones who want to purchase annuities.

Question 8

A life annuity that pays nothing to the beneficiary after the annuitant dies is called a ________ annuity.

Accepted Answer

A)  period certain 
B)  straight life 
C)  refund 
D)  joint-and-last-survivor 
A)  period certain 
B)  straight life 
C)  refund 
D)  joint-and-last-survivor

Question 9

Which of the following is true about administrative charges on an FPDA?

Accepted Answer

A)  A front-end load is also called a surrender charge. 
B)  A front-end load is charged on each premium payment. 
C)  A front-end load is always higher than the back-end load. 
D)  By law an insurer can only charge a front-end load or a back-end load, but not both. 
A)  A front-end load is also called a surrender charge. 
B)  A front-end load is charged on each premium payment. 
C)  A front-end load is always higher than the back-end load. 
D)  By law an insurer can only charge a front-end load or a back-end load, but not both.

Question 10

When an annuitant receives liquidation payments, part of the payment is a return of principal and is thus exempt from Federal Income tax. The tax-exempt portion of the payment is calculated using the:

Accepted Answer

A)  exclusion ratio 
B)  refund ratio 
C)  vested ratio 
D)  combined ratio 
A)  exclusion ratio 
B)  refund ratio 
C)  vested ratio 
D)  combined ratio

Question 11

In an annuity, the risk of dying too soon is transferred to the insurer.

Accepted Answer

A) True 
 B)False

Question 12

Explain briefly how annuity distributions are taxed.

Accepted Answer

When distributions occur out of an annui

Question 13

Judy has $500,000 with which to purchase a single-premium annuity. Which annuity should she buy if she wants to maximize her monthly liquidation payment?

Accepted Answer

A)  Straight life annuity 
B)  5-year period certain, joint and survivor 
C)  Installment refund 
D)  Cannot be determined from the given information 
A)  Straight life annuity 
B)  5-year period certain, joint and survivor 
C)  Installment refund 
D)  Cannot be determined from the given information

Question 14

An annuity mortality table:

Accepted Answer

A)  has the same numbers as a life insurance mortality table 
B)  projects that people live longer than a life insurance mortality table 
C)  projects that people live shorter than a life insurance mortality table 
D)  is always printed on yellow paper 
A)  has the same numbers as a life insurance mortality table 
B)  projects that people live longer than a life insurance mortality table 
C)  projects that people live shorter than a life insurance mortality table 
D)  is always printed on yellow paper

Question 15

It is not possible to have a level premium, immediate annuity.

Accepted Answer

A) True 
 B)False

Question 16

A male age 65 will receive lower monthly benefits per $1,000 of premium payment than a female age 65, because of the female's better longevity.

Accepted Answer

A) True 
 B)False

Question 17

Insurers have greater administrative charges for flexible-premium deferred annuities (FPDAs) than they do for single-premium deferred annuities (SPDAs) because:

Accepted Answer

A)  they do not have minimum required deposits for FPDAs 
B)  there is considerably more adverse selection among persons purchasing FPDAs 
C)  FPDA purchasers have much greater flexibility in making premium payments 
D)  This is a trick question; insurers do not impose higher administrative charges on FPDAs versus SPDAs 
A)  they do not have minimum required deposits for FPDAs 
B)  there is considerably more adverse selection among persons purchasing FPDAs 
C)  FPDA purchasers have much greater flexibility in making premium payments 
D)  This is a trick question; insurers do not impose higher administrative charges on FPDAs versus SPDAs

Question 18

Life income annuities could be beneficial to all of the following persons except:

Accepted Answer

A)  individuals just beginning retirement 
B)  childless couples without close living relatives 
C)  individuals in poor health 
D)  couples with adult children who are helping to support their parents 
A)  individuals just beginning retirement 
B)  childless couples without close living relatives 
C)  individuals in poor health 
D)  couples with adult children who are helping to support their parents

Question 19

How do insurers classify annuities to describe their benefits?

Accepted Answer

Insurers classify annuities according to

Question 20

A pure annuity has the greatest monthly benefits per $1,000 of premium payment.

Accepted Answer

A) True 
 B)False

Exam 17: Annuities

Which annuity provides for a built-in reduction of monthly payments after a specified event occurs?

Which of the following does not affect how monthly annuity benefit payments are calculated?

Ron Liven is a retiree receiving a monthly annuity payment. This year his annuity payment is $4,000 per month. Last year, it was $3,700 per month, and the year before it was $3,500. Ron does NOT know what his payment will be NEXT year. What type of annuity does he have?

The variable annuity:

Fixed dollar annuities are widely used as a hedge against inflation.

Which of the following is false regarding the annuity contract?

Why do insurers use a different mortality table for annuity benefit calculations than they use for life insurance premium calculations?

A life annuity that pays nothing to the beneficiary after the annuitant dies is called a ________ annuity.

Which of the following is true about administrative charges on an FPDA?

When an annuitant receives liquidation payments, part of the payment is a return of principal and is thus exempt from Federal Income tax. The tax-exempt portion of the payment is calculated using the:

In an annuity, the risk of dying too soon is transferred to the insurer.

Explain briefly how annuity distributions are taxed.

Judy has $500,000 with which to purchase a single-premium annuity. Which annuity should she buy if she wants to maximize her monthly liquidation payment?

An annuity mortality table:

It is not possible to have a level premium, immediate annuity.

A male age 65 will receive lower monthly benefits per $1,000 of premium payment than a female age 65, because of the female's better longevity.

Insurers have greater administrative charges for flexible-premium deferred annuities (FPDAs) than they do for single-premium deferred annuities (SPDAs) because:

Life income annuities could be beneficial to all of the following persons except:

How do insurers classify annuities to describe their benefits?

A pure annuity has the greatest monthly benefits per $1,000 of premium payment.

Introduction to Enterprise Risk Management and Insurance

Risk Identification

Risk Assessment and Pooling

Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Risk-Handling Techniques: Diversification and Hedging

Fundamentals of Insurance

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

Insurance Contracts

The Personal Auto Policy

Homeowners Insurance

Professional Financial Planning

Life Insurance Policies

Standard Life Insurance Contract Provisions and Options

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

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