Question 1

Agnes and Mary Clare,two elderly sisters,own an annuity covering both of their lives.The annuity pays benefits to them until the first sister dies,then the annuity terminates.Agnes and Mary Clare own a(n)

Accepted Answer

A) flexible premium annuity. 
B) joint life annuity. 
C) longevity annuity. 
D) joint-and-survivor annuity.

Question 2

Which of the following statements is (are)true with regard to an annuity payout option that includes a cost-of-living adjustment?
I.The initial monthly payment is lower than the initial payment a fixed annuity would have provided if purchased at the same age.
II.Periodic payments to the annuitant are adjusted for inflation.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 3

Insurers offering variable annuities charge a number of expenses.One category of expenses is to pay the fund manager and to pay brokerage fees.This expense is the

Accepted Answer

A) investment management charge. 
B) administrative charge. 
C) surrender charge. 
D) front-end load.

Question 4

With a fixed indexed annuity,what name is given to the method of crediting interest to the annuity?

Accepted Answer

A) the capitation method 
B) the indexing method 
C) the distribution method 
D) the earnings method

Question 5

Which of the following statements is (are)true with regard to IRAs?
I.Contribution limits are higher for workers aged 50 and older.
II.The minimum distribution rules after attainment of age 70.5 do not apply to Roth IRAs.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 6

Cassie,age 62,paid a life insurer $100,000 in exchange for a life annuity.If Cassie dies before receiving 120 monthly payments from the insurer,the remaining payments will be made to a beneficiary.If Cassie dies after receiving 120 payments,no additional payments are made by the insurer.The annuity payout option Cassie selected is

Accepted Answer

A) life annuity,no refund. 
B) life annuity with period certain. 
C) installment refund annuity. 
D) cash refund annuity.

Question 7

An immediate life annuity offers all of the following benefits EXCEPT

Accepted Answer

A) Immediate annuity payments are entirely exempt from federal income tax. 
B) Simplicity for the purchaser as he or she does not have to manage investment funds. 
C) Security for the purchaser as stable lifetime income that cannot be outlived is provided. 
D) The principal is safe as the funds are guaranteed by the assets of the insurer.

Question 8

Which of the following statements is (are)true about a longevity annuity?
I.Longevity annuities are low-cost because there are usually no cash values or death benefits in the policy.
II.Longevity insurance is an example of an immediate annuity.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 9

Donna,age 50,is single and earns $50,000 annually.She is covered under her employer's retirement plan.Donna would like to start a traditional IRA and contribute $5,000 this year.Which of the following describes her ability to establish a traditional IRA and the tax treatment of her contribution?

Accepted Answer

A) Her contribution is fully tax deductible. 
B) Her contribution is partially tax deductible. 
C) No portion of the contribution is tax deductible. 
D) Donna is not eligible to establish a traditional IRA,so no contribution can be made.

Question 10

Which of the following is a permissible IRA investment alternative?

Accepted Answer

A) mutual funds 
B) fine art 
C) antiques 
D) life insurance

Question 11

Which of the following statements is (are)true with regard to Roth IRAs?
I.The portion of a Roth IRA distribution that is attributable to investment income is taxable.
II.There is a maximum income level above which Roth IRA contributions are not allowed.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 12

When selling life annuities,what risk is the insurer pooling?

Accepted Answer

A) bad investment performance 
B) premature death 
C) bad expense experience 
D) excessive longevity

Question 13

Which of the following statements is (are)true concerning a joint-and-survivor annuity?
I.Under this annuity,payments begin after the first annuitant dies.
II.This annuity is often selected by married couples.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 14

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months).What is the exclusion ratio in this case?

Accepted Answer

A) 33.33 percent 
B) 40.00 percent 
C) 50.00 percent 
D) 66.67 percent

Question 15

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months).Assume that Juanita receives 12 monthly payments of $500 the first year.How much taxable income must she report?

Accepted Answer

A) $3,000 
B) $4,000 
C) $4,500 
D) $6,000

Question 16

Which of the following statements is (are)true with respect to variable annuities?
I.The price at which accumulation units can be purchased fluctuates during the funding period.
II.The value of annuity units fluctuates over time.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 17

Which of the following statements is (are)true regarding the Roth IRA?
I.Roth IRA contributions are tax deductible.
II.Roth IRA investment income accumulates income-tax free.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 18

Brad funded a life annuity through installment payments.At age 60,he decided to elect an annuity settlement option and to begin to receive payments.Which of the following annuity payout options will provide Brad with the highest monthly income?

Accepted Answer

A) life annuity (no refund) 
B) life income with payments guaranteed for 5 years 
C) life income with payments guaranteed for 10 years 
D) installment refund annuity

Question 19

Which of the following is a characteristic of a longevity annuity?

Accepted Answer

A) payment of the face value of the policy at age 100 
B) forfeiture of the purchase price if the annuitant dies during the deferral period 
C) cash value can be borrowed or recouped through a nonforfeiture option 
D) high-cost annuity compared to other life annuities

Question 20

Which statement is true regarding IRA distributions?

Accepted Answer

A) Minimum annual distribution rules apply to Roth IRAs. 
B) Distributions from a Roth IRA are taxed at the individual's marginal tax rate. 
C) The IRA penalty tax applies to all traditional IRA distributions before age 59.5 with no exceptions. 
D) Minimum annual distribution rules apply to traditional IRAs.

Exam 14: Annuities and Individual Retirement Accounts

Agnes and Mary Clare,two elderly sisters,own an annuity covering both of their lives.The annuity pays benefits to them until the first sister dies,then the annuity terminates.Agnes and Mary Clare own a(n)

Insurers offering variable annuities charge a number of expenses.One category of expenses is to pay the fund manager and to pay brokerage fees.This expense is the

With a fixed indexed annuity,what name is given to the method of crediting interest to the annuity?

Which of the following statements is (are) true with regard to IRAs? I.Contribution limits are higher for workers aged 50 and older. II.The minimum distribution rules after attainment of age 70.5 do not apply to Roth IRAs.

An immediate life annuity offers all of the following benefits EXCEPT

Which of the following statements is (are) true about a longevity annuity? I.Longevity annuities are low-cost because there are usually no cash values or death benefits in the policy. II.Longevity insurance is an example of an immediate annuity.

Donna,age 50,is single and earns $50,000 annually.She is covered under her employer's retirement plan.Donna would like to start a traditional IRA and contribute $5,000 this year.Which of the following describes her ability to establish a traditional IRA and the tax treatment of her contribution?

Which of the following is a permissible IRA investment alternative?

Which of the following statements is (are) true with regard to Roth IRAs? I.The portion of a Roth IRA distribution that is attributable to investment income is taxable. II.There is a maximum income level above which Roth IRA contributions are not allowed.

When selling life annuities,what risk is the insurer pooling?

Which of the following statements is (are) true concerning a joint-and-survivor annuity? I.Under this annuity,payments begin after the first annuitant dies. II.This annuity is often selected by married couples.

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months) .What is the exclusion ratio in this case?

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months) .Assume that Juanita receives 12 monthly payments of $500 the first year.How much taxable income must she report?

Which of the following statements is (are) true with respect to variable annuities? I.The price at which accumulation units can be purchased fluctuates during the funding period. II.The value of annuity units fluctuates over time.

Which of the following statements is (are) true regarding the Roth IRA? I.Roth IRA contributions are tax deductible. II.Roth IRA investment income accumulates income-tax free.

Brad funded a life annuity through installment payments.At age 60,he decided to elect an annuity settlement option and to begin to receive payments.Which of the following annuity payout options will provide Brad with the highest monthly income?

Which of the following is a characteristic of a longevity annuity?

Which statement is true regarding IRA distributions?