Generally, a life only contract pays the most per month because payments cease at the annuitant's death. [C]The insurance company that issued the variable annuity. Payout options of a variable annuity are guaranteed by which of the following? [C]When the contributions are withdrawn, the amount withdrawn will not be subject to taxation. [A]The investment portfolio contains insurance protections against losses. The # of annuity units is fixed at the time of annuitization, 4. A registered person recommends the purchase of a variable annuity to one of his clients. your principal amount. Life annuity has the largest payout because less risk is assumed by the insurance company. [B]The selected professionally managed annuity was not guaranteed to produce a gain. Which of the following are defined as securities? [B]The principal must review the application within 7 business days. The payout might be a very long time; deferred annuities … As its name implies, a variable annuity's rate of return changes with the stock, bond and money market funds that you choose as investment options. If an ins. Susan purchased this Variable Annuity in her Traditional IRA when she was 63 years old. co. products that should be purchased primarily for the ins. What happens to the annuity account value or a minimum guaranteed death benefit? How much of the proceeds will be taxable as ordinary income? For the time being, all of the following would be appropriate investments EXCEPT, [C]an immediate annuity which charges a single premium, Under FINRA rules, the maximum allowable sales charge on a single-payment variable annuity contract is. We weren't able to detect the audio language on your flashcards. Deferred vs. immediate annuities. The SEC requires that all of the charges under variable annuities be described in great detail in the prospectus that is offered to each variable annuity … Is required by the Securities Act of 1933, 4. As part of his profile, he stresses that he has had uncomfortable experiences in the past with the stock market and is not inclined to invest in anything that is based on stock market performance and would opt for principal protection instead. Payments from variable annuities can increase if the portfolio performs well and decrease if it loses money. This recommendation is: A) suitable due to the relative safety of the investment. Under FINRA rules, which of the following statements is TRUE about the delivery requirements of the Statement of Additional Information (SAI)? Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? D) unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. Which type of distribution from a corporate pension plan is eligible for rollover to an IRA or another corporate plan that accepts rollovers with no additional stipulations? The contract is now worth $115,000. Equity holders have the chan... Gordon’s model has implications ,this are ; [B]A one-time withdrawal would be at least partially taxable, since earnings in the variable annuity are taxed on a last-in, first-out basis. Which of the following is a characteristic of an equity indexed annuity? A flexible premium annuity allows the 'annuitant', or the owner of the annuity, to make … Several years ago, this client purchased a variable annuity for $40,000 that is currently worth $60,000. Variable annuities are designed to be long-term investments, to meet retirement and other long-range goals. His objective is monthly income that he can receive after he retires to supplement his small pension and Soc Sec benefits. Which of the following recommendations would BEST meet the customer profile? 2. Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. What effect does this have on the account? If an application for, or payment to a variable policy/annuity is received by a member firm, FINRA regulations require that the firm transmit this application or payment to the issuer/insurance company at what time? Characteristics of an Annuity. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. B)It is a variable annuity. This means that for an increas... Use LEFT and RIGHT arrow keys to navigate between flashcards; Use UP and DOWN arrow keys to flip the card; An investor who has purchased a nonqualified variable annuity has the right to: 1. vote on proposed changes in investment policy.2. features they offer rather than as an investment. [C]The benefit of growth in the account on a tax-deferred basis. withdraw funds without any tax consequences. Registration with FINRA is de factor registration with the SEC; no registration is required by the state banking commission. Mr. However, they are different products. Having a supplemental income stream for retirement and keeping pace with inflation should be the reasons to consider a VA as suitable, but not preservation of capital. Your customer asks you how income from investments and capital gains realized in a variable annuity separate account are handled. Not a set percentage, but rather what is considered "fair and reasonable. How are contributions to this type of investment product treated for tax purposes? A customer who redeems a Variable Annuity prior to the scheduled annuity date would be taxed in which of the following ways? Must provide full and fair disclosure, 2. All of the following are characteristics of variable life insurance except flexible premium payments. C. variable annuities are classified as insurance products. A growth firm’s internal rate of return (r) is greater than cost of capital (k). C) Life annuity with 10 year period certain. Several years ago, a client had a few investment options and the decision was made that the client would invest in a non-qualified variable annuity. 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. Must precede every sales presentation. (d) by the face amount of the policy. D) Mutual Fund portfolio consisting of blue chip stocks. B) the rate of return is determined by the underlying … Though its stated return might not be as high as the other choices' potential returns, only a fixed annuity fits the objective and risk averse traits of his client. vote for the investment adviser.4. Variable annuities must be registered with: A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. A VA does not guarantee an earnings rate because earnings will depend on the performance of the separate account. An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. Question: The Variables In A Present Value Of An Annuity Problem Include All Of The Following, Except O Payments O Risk Profile Interest Rate O Time Period This problem has … Which of the following is TRUE of an annuitized variable annuity contract? The woman puts her assets in the trust and names the trust as beneficiary of the Traditional IRA. What is Susan's situation with regard to her IRA which contains the Variable Annuity? A registered representative explaining variable annuities to a customer would be CORRECT in stating that: 1. a VA guarantees an earnings rate of return, 2. a VA does not guarantee an earnings rate of return, 4. a VA does not guarantee payments for life. Which of the following is accurate with regards to deferred variable annuity features? Who assumes the investment risk in a variable annuity contract? What is the present dollar value of the contract? As with all tax-deferred accounts, muni bonds are not appropriate investments because interest earned on munis is already tax exempt at the federal level. Sales charge breakpoints for investments in a variable annuity are based on: [A]the total amount invested in a variable annuity. Which of the following statements is FALSE regarding variable annuity contracts? Jack and Diane are looking at variable annuities. [B]Investors seeking capital appreciation over a long period of time. The client decides to make a single, one-time withdrawal of $9,000 to pay off a credit card and take a cruise with his wife. [B]Payments are taxed as ordinary income on the portion that is not attributable to the annuitant's cost basis. $20,000 invested divided by $10 per unit equals 2,000 units. A variable annuity is both an insurance and a securities product. There is no beneficiary in the event the annuitant dies. The two have been married for a long period of time. A security is an investment for profit with management performed by a third party. All of the following are characteristics of an annuity due except: a. the present value of an annuity due is always less than the present value of an ordinary annuity b. the compounding … Which of the following is a characteristic of a variable annuity? If an individual is looking for additional ways to save for retirement, an annuity … holder dies sooner than expected. Fixed Annuity Payments . If an annuitant lives longer than expected, the ins. His cash flow will be the greatest if the payment option he selects is. Variable annuities are not suitable for meeting short-term goals because … Periodic payments are not a consideration because normally the payments into an annuity are level or in a lump sum. The Fisher Effect has all of the following components, except: … Companies issuing non-tax qualified variable annuities must be registered with all of the following EXCEPT. His account value is now $30,000. A) There is no risk in a variable annuity. A registered equity-indexed annuity is sold with a prospectus by a registered representative. An immediate life annuity offers all of the following benefits EXCEPT. The RR should state that the customer can expect. All of the following statements are true about variable annuities and mutual funds, except: A. Concerning a variable annuity, what do you call the charge to the annuity's separate account that relates to the potential of the annuitants outliving the annuity's life expectancy assumptions? The annuity that represents the largest possible monthly payment to an … Find out how you can intelligently organize your Flashcards. Fixed annuities are characterized by all of the following, EXCEPT: Fixed annuities have a guaranteed minimum interest rate at which the premium payments accrue interest during the accumulation phase and a fixed interest rate at which benefits are paid during the annuity … A broker/dealer offers variable contracts to its clients. The customer could annuitize and take a guaranteed lifetime income during his retirement. Variable annuity salespeople must register with all of the following EXCEPT: Variable annuity salespeople must be registered with FINRA and the state insurance department. D. insurance companies keep variable annuity funds in separate accounts from other insurance products. An investor buys a nonqualified deferred variable annuity and contributes $25,000. Add to folder[?] He must ensure that the client, in addition to meeting suitability requirements, is aware of all of the following EXCEPT: A) a VA contract will provide a fluctuating monthly check upon the annuitization of the contract. Therefore, variable annuities must be registered with the state insurance commission and the SEC. [B]The rep must document the client's need or benefit of growth that is tax-deferred in the annuity. For an investor, which of the following is the MOST important factor in determining the suitability of a VA investment? An investor wants to purchase a single-life variable annuity in which he would receive payments until he died and would continue to make payments to his beneficiary should he die before the end of a specified period of time. Variable annuities, by contrast, pay a rate that varies … All of the following statements concerning a variable annuity are correct EXCEPT: A. the invested money will be professionally managed according to the issuers' investment objectives. The most important consideration in purchasing a VA is to be aware that benefit payments will fluctuate with the investment performance of the separate account. You have created 2 folders. [D]Compensation to the insurance company for the risks associated with annuitants exceeding their life expectancy. The Spendthrift Clause of a life insurance policy is designed to do all of the following EXCEPT A)Pay the death benefit in fixed-amount or fixed-period payments. They would be contributing the same amount to the annuity in either case, but they are assuming that since the Joint and Last survivor Annuity covers both of them, that they would receive higher monthly payments from that annuity. What determination must be documented by the rep in relation to the investment in the deferred variable annuity under FINRA Regulations? Variable life insurance is an insurance policy in which the payout amounts are determined by the performance of the underlying securities in the policy. • Interest rate (i): fixed. During the course of day-to-day business, a principal at an OSJ (Office of Supervisory Jurisdiction) gets an application that comes across her desk for a 1035 exchange. For a retired person, which of the following investments would provide the greatest protection against inflation? If the owner of a VA dies during the accumulation period, any death benefit will: B) be paid to the issuing company to complete the plan, C) be paid to the designated beneficiary, D) be paid to any legal heirs as recognized by the annuitant's state of domicile. All of the following are true about immediate annuities EXCEPT: A) There is no accumulation period B) There is no beneficiary C) They are often used in structured settlements D) They pay … [D]The new owner uses the NAV of the fund upon the previous owner's date of death. The owner elects an annuity payout option. [D]The SAI must be provided upon request. [A]Tax liability is determined by subtracting the amount which was invested in the annuity from the net proceeds upon surrender. All of the following are characteristics of Variable Annuity contracts EXCEPT. [C]The portfolio protects the holder against capital loss. [C]an exchange between annuities or life insurance policies, free of taxes. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. Insurance … A variable annuity's separate account is: The separate account is used for both variable life insurance and variable annuity investments. [C]Losses are disallowed and gains are taxed as ordinary income. Variable annuity companies retain dividends, but the owner of the variable annuity … Variable annuities may invest premiums in each of the following, EXCEPT: Insurer's corporate business account. As part of the registration requirements, a prospectus must be filed & distributed to prospective investors. The distributions are taxable in the year that they are made. holder dies sooner than expected, the ins. When a VA contract is annuitized, the # of annuity units is fixed. In addition, an element of risk must be present. co. will have to continue payments longer than expected. A) Age 78, retired for 20 years, lives comfortably and wants to leave all liquid assets to children, D) Age 56, available cash to invest, makes the max retirement plan contributions to an existing IRA & 401K plan. When converting accumulation units to annuity units when annuitizing a variable annuity contract, all of the following would be considered EXCEPT the, [D]beneficiary's choice of payout options, The appreciation of the value of a variable annuity during the accumulation period is. Assuming the paperwork is complete and there are no discrepancies, review by this principal for approval or rejection must take place with regards to the exchange recommendation within what time period? by jmacewe, The possibility of higher returns and greater income than fixed annuities, but there's also a risk that … [C]The withdrawal is taxable because tax law requires the use of the LIFO (last-in, first-out) method. Using an annuity to fund a qualified retirement plan: [D]may be suitable because the annuity provides a guaranteed lifetime income during retirement and because of the death benefits provided. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59 1/2. The # of accumulation units can rise during the accumulation period, 3. B. separate account may consist of mutual funds. Variable annuities may invest premiums in each of these EXCEPT the "Insurer's corporate business account". Mortality assumptions are based on life expectancy or mortality tables prepared by ins. Distribution can take place before or during any solicitation for sale. A Registered Representative sold a deferred variable annuity to an unmarried 18 year old high school senior who had just inherited $30,000. Your client has $50,000 to invest. Mr. Brown invested $20,000 in a non-qualified variable annuity. & securities licenses. contract. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. co. actuaries. Introducing Cram Folders! Variable annuity contracts were devised to help investors keep pace with inflation. Oct. 2014, Subjects: Annuity Contracts, Purchasing Annuities, Receiving Distribution from Annuities, Variable Life. Principal underwriter broker/dealer DEF is the distributor of the contracts for the insurance company. The annuitant or the beneficiary will receive payments for a minimum of 10 years. 1. have investment risk that is assumed by the investor, 3. can be sold by someone with only an insurance license, 4. are purchased primarily for their insurance features. Your branch does a somewhat sizeable business in deferred variable annuities. Holders of variable annuity contracts have investment risk. A one-time withdrawal is made by the customer from the annuity in the amount of $10,000. Find out how you can intelligently organize your Flashcards. What is the dollar amount of the contract owner's cost basis? During the accumulation period of a variable annuity the contract holder dies. However, debt holders have no ownership in the company and once a debt vehicle is purchased, the contractual limitation are set. The separate account of a variable annuity has earned a return higher than the assumed interest rate (AIR) on the policy. Retail broker/dealer ABC wants to sell a certain variable annuity contract to a customer. 1. The rep comes to the conclusion that a deferred variable annuity will be the best choice for this particular client. Elderly has reached retirement age and is about to exchange his accumulation units in a variable annuity for annuity units. She intended to take a lump sum payment from the annuity for a down payment on a house when she graduated from college in four or five years. She is unmarried, has two grown children, and has established a trust naming her two children as sole beneficiaries. C. variable annuities will protect an investor against capital loss. [B]The value of the accumulation units is used to determine the number of annuity units. 1. For this potential advantage, the investor, rather than the ins. 2,000 units times $15 per unit equals. Her intent was to use the funds for the down payment on a house after graduation. An investor looking for which of the following investment goals would be BEST served by a deferred variable annuity? The # of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. The Statement of Financial Accounting Standards defines emission allowances as Goodwill and In... An interest rate is a percentage paid for the use of borrowed money. All of the following statements regarding variable annuities are true EXCEPT: A. variable annuities may only be sold by registered representatives. According to Rittenberg & Tregarthen (2012, p. 406), interest rates affect exchange rate... Murphy does not agree with the way governmental institutions oversee our nation’s finances. D. a majority vote from the shareholders is required to change the investment objectives. B. variable annuities offer the investor protection against capital loss. [A]Both firms must be members of FINRA and there must be a written sales agreement between them. A "Statement of Additional Information" must be delivered to any investor interested in a mutual fund or variable annuity. Cram has partnered with the National Tutoring Association, Characteristics Of Fungible Treasury Bills (T-Bills), Difference Between Passive Interest And Passive Income, Financial Ratio Analysis: Superbury's Supermarket PLC, Effect Of Interest Rates On Exchange Rates, The Politically Incorrect Guide To Capitalism By Robert Murphy, Personal Lines And Commercial Lines Analysis, Similarities And Differences Of Debt Equity, Gordon And Lintner's Dividend Decision Theory. B) a VA contract is not required to be sold by prospectus because it is an ins. Mutual funds and variable annuities are regulated under the Investment Company Act of 1940. audio not yet available for this language, {"cdnAssetsUrl":"","site_dot_caption":"Cram.com","premium_user":false,"premium_set":false,"payreferer":"clone_set","payreferer_set_title":"Variable Annuities","payreferer_url":"\/flashcards\/copy\/variable-annuities-5097323","isGuest":true,"ga_id":"UA-272909-1","facebook":{"clientId":"363499237066029","version":"v2.9","language":"en_US"}}. The sale may be unsuitable for all of the following reasons, except? First, earnings … B) unsuitable because the return on something as conservative as a variable annuity tends to be low. Annuities are another way to get tax-deferred growth or earnings outside of IRAs or employer-sponsored retirement plans. Of the following statements, which is TRUE regarding this situation? P, age 50, purchased … If a customer is about to buy a variable annuity contract and wants to select an annuity with a payout option providing the largest possible monthly payment, which of the following payout options would be MOST suitable? He elects a lump sum settlement. B. A rep at the firm has been working on determining appropriate investments for a client. D. Value of each annuity unit each month. Concerning variable annuities, it is correct to state all of the following EXCEPT: [D]That the portfolio protects the annuitant against capital loss. How should their agent handle this scenario? Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. A)Interest rates are often associated with a stock index. [C]The agent should inform them that since the Joint and Last Survivor Annuity must cover the life expectancy of both of them, that the payout from this option will actually be less than that from a Life Annuity for Diane alone. C) suitable due to the death benefit features of a variable annuity. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. approve changes in the plan portfolio.3. What should you tell the client? Please select the correct language below. Variable annuities are regulated both by the individual states (as insurance products) and by the Securities and Exchange Commission (as securities under the federal securities laws). All of the following statements pertaining to variable annuities are TRUE EXCEPT: [B]The insurance company bears the investment risk.