Variable annuity salespeople must register with all of the following EXCEPT: Which of the following are defined as securities? This would not align with the couple's criteria for coverage as long as they both live. A variable annuity is a type of annuity contract in which the value can vary based on the performance of an u . You can learn more about the standards we follow in producing accurate, unbiased content in our. \hspace{10pt} Federal unemployment (employer only), 0.8%0.8\%0.8%. D) Capital gains tax on earnings exceeding basis. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies. Once the contract is annuitized, monthly payments to the customer are: When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). Variable annuity salespeople must register with all of the following EXCEPT: An investor who purchases a fixed annuity contract assumes purchasing-power risk. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will the tax liability to the IRS be? C) 10% penalty plus payment of ordinary income tax on all funds withdrawn exceeding basis. B) The death benefit cannot ever be more than the guaranteed benefit. B)Two-thirds of the withdrawal is taxable as ordinary income. His objective is monthly income that he can receive after he retires to supplement his small pension and social security benefits. Fixed annuities typically earn at a lower, stable rate. B)II and III. Reference: 12.1.2 in the License Exam. Of the total payroll for the last week of the year, $30,000\$30,000$30,000 is subject to unemployment compensation taxes. Classifying annuities There are many categories of annuities. C)annuity units. C)III and IV. It is the starting point of motivation because they generate emotions. D)with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed, With guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is not guaranteed because payments stop when the annuitant has received an amount equal to the principal account value or the contract term ends. He wants to ensure that the client, in addition to meeting suitability requirements, is aware of certain variable annuity contract characteristics. Which of the following statements regarding variable annuities are TRUE? D)an accounting measure used to determine payments to the owner of the variable annuity. C) Corporate bonds. B)II and III. D) accumulation shares. Question #42 of 48Question ID: 606830 a. it performs a single task b. it is self-contained and independent of other modules c. it is relatively short d. all of the above are chamcleristics of a program module 7. Salaries:SalessalariesWarehousesalariesOfficesalaries$670,000110,000234,000$1,014,000Deductions:IncometaxwithheldSocialsecuritytaxwithheldMedicaretaxwithheldU.S. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. The annuitant may not contribute and withdraw simultaneously. Fixed Annuity, Retirement Annuities: Know the Pros and Cons. A 10% penalty applies only if distributions begin before age 59-. FINRA. The investor purchased accumulation units. B) accumulation units. 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. D) minimum guaranteed death benefit. When the annuitization option is selected, each payment represents both capital and earnings. C)It will be higher. D)the rate of return is determined by the underlying portfolio's value. B) Exchange traded Funds (ETFs) or Exchange traded Notes (ETNs) A)Fixed annuities. The accumulation unit's value is used to calculate the total value of the account. D) variable annuities may only be sold by registered representatives. He makes the following four statements, all of which are true EXCEPT IBM is a global brand and has its presence in 170 countries and operates . An individual retirement annuity is an investment vehiclesimilar to an individual retirement accountthat is offered by insurance companies. Are Variable Annuities Subject to Required Minimum Distributions? B)I and IV. d. Each month the payment will increase, decrease, or remain the same as the previous month's payment . IV. A client has purchased a nonqualified variable annuity from a commercial insurance company. They offer broad diversification in the securities market and potential growth, all while using the power of tax deferral. Therefore, ordinary income taxes will apply to the entire $10,000. A) Age 56, available cash to invest, makes the maximum retirement plan contributions to an existing IRA and 401(k) plan They are also not considered suitable for anyone who anticipates needing a lump sum within a short time frame to fund other endeavors. She may choose to receive monthly payments for the rest of her life. The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. B) 0. During the accumulation phase, the number of accumulation units will increase as additional money is invested. Reference: 12.3.2.1 in the License Exam. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. Question #19 of 48Question ID: 606826 Which of the following statements is not true about the characteristics of a trend? The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. Reference: 12.1.2.1.2 in the License Exam. Investopedia requires writers to use primary sources to support their work. Based on this information the RR should: IBM Noida, Uttar Pradesh, India4 weeks agoBe among the first 25 applicantsSee who IBM has hired for this roleNo longer accepting applications. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. B)Fixed annuity contract with a discussion regarding timing risk Future annuity payments will vary according to the separate account's performance. C)Mortality risk. These contracts come with high surrender charges. Annuities are complicated products, so that may be easier said than done. A) Money market fund. C)municipal bonds. C)earnings only and taxable Final answer. A)the state banking commission. . C) 3800. A)value of underlying securities held in the separate account. *This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. Most annuities will not allow you to withdraw additional funds from the account once the payout phase has begun. *A periodic payment immediate annuity is a contradiction in terms. The number of annuity units varies. The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. A) variable annuities offer the investor protection against capital loss. An Immediate Annuity is designed to provide each of the following features, EXCEPT: The creation of an estate. D)suggest to the client that perhaps a loan or refinancing his vacation home might be a better way to fund the contract purchase. the state insurance commission. C) II and IV. Full-Time. D) Joint and last survivor annuity. A)a lifetime withdrawal benefit (LWB) or lifetime income benefit is generally in the form of a rider attached to the contract which will come at a cost to the annuitant C) The investor's concerns about taxes. Which of the following recommendations would best meet the customer profile? The separate account performance compared to last month's performance. Periodic payment deferred annuity. Reference: 12.1.4 in the License Exam. B)IRAs. A variable annuity is just a tax-deferred annuity in which you get to choose how the value of the annuity is invested. The value of accumulation and annuity units varies with the investment performance of the separate account. D) not suitable because a lifetime income rider is only for someone who is already retired. D)each annuity unit's value is fixed, but the number of annuity units varies with time. Following the transition to T+1 in the U.S. markets, Commission staff will continue to work with industry leaders, public interest advocates, investors and other regulators to assess the future feasibility of a T+0 settlement standard cycle, and seek to identify ways to overcome the challenges associated with such a move, as articulated in the . Funding a VA contract by cashing out either life insurance policies or existing VA contracts, especially those held for a short period of time is not suitable. Guaranteed Lifetime Annuity: How They Work, When They Pay You, This is also generally true of retirement plans. \hspace{7pt} b. January 444, to record the employers payroll taxes on the payroll to be paid on January 444. C)Variable annuity contract with a discussion regarding interest rate risk Which Earns More: Variable or Fixed Annuities? D)the safety of the principal invested. C)prime rate. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. withdraw funds without any tax consequences. C) Life annuity with period certain. There are two interest rates under fixed annuities. approve changes in the plan portfolio. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. The customer, in the accumulation stage of the annuity, is holding accumulation units. Annuity units are units of ownership when the contract is in the payout stage. A client has purchased a nonqualified variable annuity from a commercial insurance company. C) such an annuity is designed to combat inflation risk. A trend makes considerable influence or impact. A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic pay- ments to you, beginning either immediately or at some future date. A) II and IV. B)It will be lower. A) I and IV. MetLife offers a comprehensive benefits program, including healthcare benefits, life insurance, retirement benefits, parental leave, legal plan services and paid time off. B)each annuity unit's value varies with time, but the number of annuity units is fixed. A)IPO. Home; About. If you need to withdraw money from the account because of a financial emergency, you may face surrender fees. The funds in an annuity are off-limits to creditors and other debt collectors. C)the number of annuity units is fixed, and their value remains fixed. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. A registered person recommends the purchase of a variable annuity to one of his clients. Annuities: How to Find the Right One for You, How a Fixed Annuity Works After Retirement, Pros and Cons of Indexed Universal Life Insurance. Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? Deferred Annuity Definition, Types, How They Work, What Is a Fixed Annuity? C)I and IV. III. . Reference: 12.1.2 in the License Exam. **Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. B) 10% penalty plus payment of ordinary income tax on all funds withdrawn. A variable annuity's separate account is: A separate account will invest in a number of different securities. D) A 50 year old individual with $50,000 cash to invest who has already made the maximum contributions to an IRA and the 401(k) plan at his place of employment and would like to minimize some of the tax consequences of his currently high tax bracket. Distributed along a dermatome. Reference: 12.3.3 in the License Exam. C) number of accumulation units. The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. D) II and III. All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: The annuity unit's value represents a guaranteed return. externalities. Question #33 of 48Question ID: 606832 Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. If this client is in the payout phase, how would his April payment compare to his March payment? Reference: 12.1.1 in the License Exam. C) none of these. A variable annuity is both an insurance and a securities product. a variable annuity guarantees an earnings rate of return. B)I and III. C) IRAs. B)reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. Investopedia does not include all offers available in the marketplace. For a retired person, which of the following investments would provide the greatest protection against inflation? B) the rate of return is determined by the underlying portfolio's value. In deciding whether to put money into a variable annuity versus some other type of investment, its worth weighing these pros and cons. 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? The separate account is NOT likely to invest in: An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: John is the annuitant in a variable plan, and Sue is the beneficiary. A)Corporate debt securities A) defined contribution plans. A) partially a tax-free return of capital and partially taxable. Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. B)part earnings and part cost basis Universal variable life policies Reference: 12.3.3 in the License Exam. A) number of annuity units. A) I and III. B) II and IV. D) I and IV. An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are Get Started. D) II and IV. C) each annuity unit's value and the number of annuity units vary with time. We also reference original research from other reputable publishers where appropriate. A) II and III. When a variable annuity contract is annuitized, the number of annuity units is fixed. A) I and III. Distribution can take place before or during any solicitation for sale. a variable annuity does not guarantee payments for life. A joint-and-last-survivor annuity is a payout option where: A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. An immediate annuity is designed to pay an income one time-period after the immediate annuity is bought. B) allow customers to opt out of sharing of financial information with certain nonaffiliated firms. B) I and II. A)equity funds. The number of annuity units is fixed. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. \hspace{7pt} a. December 303030, to record the payroll. A guaranteed lifetime annuity promises to pay the owner an income for the rest of their life. Question #16 of 48Question ID: 606807 However, if you take a withdrawal during the contractssurrender period, which can be as long as 15 years, youll generally have to pay a surrender fee. These contracts cover both lives and will continue to make payments until the last spouse dies. This customer has no spouse or dependents, which negates the value of the death benefit. must provide full and fair disclosure. B) During the accumulation period. Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both insurance and securities licenses. B)Variable annuities. However, at the end of the period certain the payments to the named beneficiary (the spouse) will stop. Variable annuities involve underlying equity investments in a separate account. a. They can be classified by: Nature of the underlying investment - fixed or variable The second phase is triggered when the annuity owner asks the insurer to start the flow of income, often referred to as the payout phase. C)Life annuity. Who assumes the investment risk in a variable annuity contract? The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. The growth portion is taxed as ordinary income. Life annuity has the largest payout because less risk is assumed by the insurance company; there is no beneficiary in the event the annuitant dies. If the account is annuitized, the investor has chosen a payout option. \hspace{10pt} \text{Office salaries} & \underline{234,000} & \hspace{10pt} \text{Medicare tax withheld} & 15,210\\ Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. A) Joint tenants annuity. Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? When the annuitization option is selected, each payment represents both capital and earnings. *Once a variable annuity is annuitized, the accumulation units are converted into a fixed number of annuity units. C) a variable annuity contract does not guarantee any type of return B)fixed in value until the holder retires. D) the payout plans provide the client income for life. Immediate annuities purchase annuity units directly. If the customer takes a withdrawal of $10,000, what are the tax consequences? CDs insured by the FDIC. For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? d) What is the probability that a user is from the United States, given that he or she logs on every day? This chapter was updated on 15 December, 2005. a variable annuity guarantees an earnings rate of return. Question #25 of 48Question ID: 606819 If you die before the payout phase, your beneficiaries may receive a. A)Fixed annuity contract with a discussion regarding purchasing power risk A)number of annuity units. B)fixed in value until the holder retires. If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? Reference: 12.3.1 in the License Exam. If one purchases an annuity for a set price, the issuing company would invest the funds and hold them until they are supposed to be disbursed, generally based on the owner's age. Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. B)Life annuity with period certain. Fixed annuities. D) I and III. Your 65-year-old client owns a nonqualified variable annuity. A)100% tax free. Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Eric W. Noreen, Peter C. Brewer, Ray H Garrison. A) waiver of premium IV. Once a customer annuitizes a variable annuity, which of the following statements are TRUE? Reference: 12.3.1 in the License Exam. B) The entire $10,000 is taxable as ordinary income. III) A hierarchy of corporate staff evaluates divisions' plans and performance. If this client is in the payout phase, how would his April payment compare to his March payment? Reference: 12.1.2.1.1. in the License Exam. Are There Penalties for Withdrawing Money From Annuities? In March, the actual net return to the separate account was 8%. However, it does guarantee payments for life (mortality). The time period depends on how often the income is to be paid. *Only variable annuities have payout plans that provide the client income for life. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. An investor owning which of the following variable annuity contracts would hold accumulation units? Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. Your customer, still working, informs you that she will be funding a variable annuity you have recommended from 2 sources: a refinancing of her primary home where she will be able to draw out equity that has built up since it was purchased 15 years ago, and cashing out another variable annuity that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. A) There is no risk in a variable annuity. Each of the remaining statements are true. Prudential's businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, asset management, and real estate services. *Annuity death benefits are generally paid in a lump sum. Question #44 of 48Question ID: 606797 A)There is no tax as the withdrawal is considered return of capital. But again, the need to designate beneficiaries is not an issue for this annuitant. A) It will be higher. The client agrees to purchase the contract and informs the RR that he will be cashing out a VA he purchased 2 years ago to fund the new contract and will forward the check as soon as he receives it. Reference: 12.1.2 in the License Exam. For a retired person, which of the following investments would provide the greatest protection against inflation? How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. 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. Your customer in his early 30s has received a modest inheritance from a relative. \hspace{10pt} Social security, 6%6\%6% on first $100,000\$100,000$100,000 of employee annual earnings *Funding a VA contract by cashing out either life insurance policies or existing VA contracts, especially those held for a short period of time is not suitable. All of the following statements regarding variable annuities are true EXCEPT: A) variable annuities offer the investor protection against capital loss.