Home; About. A) I and IV. B) I and III. Reference: 12.3.3 in the License Exam. C. An annuitant assumes the investment risk of a variable annuity and is not protected by the insurance company from capital losses. With variable annuities policyholders can choose from a number of investment opportunities. A)Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. C) annuity units. In this case, the investor is taking a lump-sum distribution before reaching age 59- and must pay an additional 10% penalty on the taxable amount. Spartan Technology Services and Solutions Private Limited is a subsidiary of IBM (International Business Machines) Corporation. *Variable annuity contracts must be sold by prospectus due to the characterization of the separate accounts as securities, which must be registered under the Securities Act of 1933 and the Investment Company Act of 1940. During the accumulation phase, the number of accumulation units will increase as additional money is invested. The income was deferred from tax over the plan's life, so it is taxable as ordinary income once distributed. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? continues payments only as long as all annuitants are still alive. There are also immediate annuities, which begin paying income right away. (Check all that apply.) These contracts cover both lives and will continue to make payments until the last spouse dies. Investopedia requires writers to use primary sources to support their work. A)II and IV. D)the rate of return is determined by the underlying portfolio's value. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. Assuming that the payroll for the last week of the year is to be paid on January 444 of the following fiscal year, journalize the following entries: 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? A)variable annuities may only be sold by registered representatives. B) accumulation units. IV. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? ($5,000) to a stock fund. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. His objective is monthly income that he can receive after he retires to supplement his small pension and social security benefits. no. B)Two-thirds of the withdrawal is taxable as ordinary income. Reference: 12.1.4.1 in the License Exam. However, they are protected by state guaranty associations in the event that the insurance company providing the product goes out of business. The work environment characteristics are normal office conditions. Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? a. variable annuity without paying tax at the time of the transfer. Before buying a variable annuity, investors should carefully read the prospectus to try to understand the expenses, risks, and formulas for calculating investment gains or losses. A)IPO. A)not suitable The entire amount is taxed as ordinary income. Securely download your document with other editable templates, any time, with PDFfiller. D) Variable annuities. B)I and II B)mutual fund units. A) be paid to a designated beneficiary. Based on this information the RR should: *Waiver of premium is a benefit available on qualified life insurance contracts, usually in the form of a rider, which provides for the waiver of premium payments that fall due while the policyholder is totally disabled. B) variable annuities. Her intent was to use the funds for the down payment on a house after graduation. If the customer takes a withdrawal of $10,000, what are the tax consequences? Your 65-year-old client owns a nonqualified variable annuity. B)I and III. Job Classification: Corporate - Legal and Compliance. a) What percentage of Facebook's users are from the United States? *The accumulation period of a variable annuity may continue for many years. D) tax free. C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. 6102..55.001) is being updated on an ongoing basis. A) number of annuity units. B) life income A 60-year-old individual, nearing retirement who has both IRAs and a 401k in place, is comfortable with market risk associated with the stock market, and has a lump sum in cash available to fund the annuity D) I and IV. "Variable Annuities: What You Should Know," Pages 67. A) Any tax due is deferred. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. A registered representative explaining variable annuities to a customer would be CORRECT in stating that: *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. Question #32 of 48Question ID: 606815 D)separate account may consist of mutual funds. a variable annuity does not guarantee payments for life. Periodic payments are not a consideration because normally the payments into an annuity are level or in a lump sum. A variable annuity is a type of annuity contract in which the value can vary based on the performance of an u . B)I and IV. D) The investment risk is shared between the insurance company and the policyowner. D) a minimum of 10 years of variable payments, followed by additional variable payments for life D)Variable annuity contract with a discussion regarding legislative risk, A VA with its investments in the separate account subject to market risk would not align with the customer's objective. A. C)Money market fund. Variable annuity salespeople must register with all of the following EXCEPT: Which of the following are defined as securities? In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. A registered representative recommends a variable annuity with an income rider to a client. D) II and IV. A life with period certain contract guarantees payments for a specified number of years to a named beneficiary if the annuitant dies during that time. The separate account is used for both variable life insurance and variable annuity investments. Travel Times Journal found that the average per person cost of a 10-day trip along the Pacific coast, per person, is $1,015. When a variable annuity contract is annuitized, the number of annuity units is fixed. Variable annuities grow tax-deferred, so you dont have to pay taxes on any investment gains until you begin receiving income or make a withdrawal. B) Age 78, retired for 20 years, lives comfortably and wants to leave all liquid assets to children C)not suitable because a lifetime income rider is only for someone who is already retired However, it does guarantee payments for life (mortality). C) value of underlying securities held in the separate account. Variable annuities operate in similar ways to . B) The investor's marital status. The accumulation unit's value is used to calculate the total value of the account. A)Fixed annuities. C) number of accumulation units. e) Are From the United States and Log on every day independently? A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. C) the yield is always higher than bond yields. D) Variable annuities. A) waiver of premium C)100% tax deferred. Spartan Technology Services and Solutions Private Limited is a subsidiary of IBM (International Business Machines) Corporation. 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. C) Corporate bonds. D)suggest to the client that perhaps a loan or refinancing his vacation home might be a better way to fund the contract purchase. B) I and IV. D)I and II. Qualified Longevity Annuity Contract (QLAC): Definition, Taxes, and Example, Present Value of an Annuity: Meaning, Formula, and Example, Future Value of an Annuity: What Is It, Formula, and Calculation, Calculating Present and Future Value of Annuities, Present Value Interest Factor of Annuity (PVIFA) Formula, Tables. If the data is normally distributed with standard deviation$198, find the percent of vacationers who spent less than $1,200 per day. C) II and IV. 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? Based on this information the RR should: B) The entire $10,000 is taxable as ordinary income. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. The annuity unit's value represents a guaranteed return. When the second party dies, all payments cease. *A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. This recommendation is: C) The portion of the premium invested in the insurance company's general account is used to provide for the minimum guaranteed amount of the death benefit. Question #40 of 48Question ID: 606800 Sub accounts and mutual funds are conceptually identical, but sub accounts don't have ticker symbols that investors can easily type into a fund tracker for research purposes. Annuities due are a type of annuity where payments are made at the beginning of each payment period. During the payout period, payments are based on a fixed number of annuity units established when the contract was annuitized. 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. Annuity units are units of ownership when the contract is in the payout stage. C) 10% penalty plus payment of ordinary income tax on all funds withdrawn exceeding basis. C) A 25year old public school teacher who would like to save enough for the purchase of her first home within the next 3 to 5 years. For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. B) I and III. can be sold by someone with only an insurance license Here is how guaranteed lifetime annuities work. A) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero What type of annuity has a cash value that is based upon the performance of it's underlying investment funds? *During the accumulation phase, the number of accumulation units will increase as additional money is invested. The value of these units varies with the performance of the separate account. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. B) Life annuity. Nicks Enterprises has purchased a new machine tool that will allow the company to improve the efficiency of its operations. For this potential advantage, the investor, rather than the insurance company, assumes the investment risk. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. All of the following are characteristics of Variable Annuity contracts EXCEPT The possibility of higher returns and greater income than fixed annuities, but there's also a risk that the account will fall in value A There are no surrender fees B Guaranteed death benefit C Tax deferred growth D Training Explanations The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. Round to the nearest hundredth of a percentile. This compensation may impact how and where listings appear. The distribution of questions by topic is not intended to represent the 39) A variable annuity has the following guarantees: [PDF] Understanding your variable annuity UBS Variable annuities are long-term investment vehicles that with these securities as well insurance company and do not apply to the investment It is innate and universal. C)It will be higher. A)the number of annuity units becomes fixed when the contract is annuitized. C) Mutual fund portfolio consisting of blue chip stocks The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. *Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). C) taxed as ordinary income only to the extent of earnings. A) the investment portfolio is managed professionally. Once a variable annuity has been annuitized: A) Age 56, available cash to invest, makes the maximum retirement plan contributions to an existing IRA and 401(k) plan Question #22 of 48Question ID: 606803 C) There is no tax as the withdrawal is considered return of capital. D) I and IV. B) During the accumulation period. \hspace{10pt} Federal unemployment (employer only), 0.8%0.8\%0.8%. d) What is the probability that a user is from the United States, given that he or she logs on every day? *The most important consideration in purchasing a variable annuity is to be aware that benefit payments will fluctuate with the investment performance of the separate account. B) fixed in value until the holder retires. A) I and III. A) not suitable C) the client assumes the investment risk. Surrender fees and penalties for early withdrawal. A)It will stay the same. The money paid in will be returned tax free, but the earnings portion will be taxed as ordinary income. D) II and IV. A) II and III. The annuitized payments are viewed for tax purposes as A) I and II must be filed with FINRA. *Payments from a variable annuity depend on the securities' value in the separate account's underlying investment portfolio. Reference: 12.1.1 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. If this client is in the payout phase, how would his April payment compare to his March payment? A) I and IV. Outgoing personality with the ability to develop relationships (i.e., "People Person") and a sincere desire to help others Fearless, positive attitude, and willingness to be accountable for results Organized, detail-oriented, and excellent time-management skills A desire for continuous learning D)suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract, Based on the information given in the question, the VA recommendation would not be suitable. They are also riddled with fees, which can cut into profits. D) cost of living. D) a minimum of 10 years of variable payments, followed by additional variable payments for life. As with most retirement account options, withdrawals before the age of 59 will result in a 10% tax penalty. Reference: 12.2.1 in the License Exam, Question #48 of 48Question ID: 606835 Your client has a large sum of money to invest from the proceeds of the sale of his home. The offers that appear in this table are from partnerships from which Investopedia receives compensation. B) suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract A) a minimum rate of return is guaranteed. C)Growth mutual funds A variable annuity is a tax-deferred retirement vehicle that allows you to choose from a selection of investments and then pays you a level of income in retirement that is determined by the performance of the investments you choose. Question #27 of 48Question ID: 606818 A) periodic payment immediate annuity. Cashing out life insurance policies or VAs where steep surrender charges are likely to exist, particularly in the earlier years of those contracts, is also considered abusive. D) expense guarantee. They are also not considered suitable for anyone who anticipates needing a lump sum within a short time frame to fund other endeavors. Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. C) III and IV 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. When the annuitization option is selected, each payment represents both capital and earnings. U.S. Securities and Exchange Commission. Question #16 of 48Question ID: 606807 These contracts come with high surrender charges. Reference: 12.3.3 in the License Exam. What percentile is represented by $710? Deal with mathematic Math is all about solving equations and finding the right answer. guarantees payments for a certain period of time. Variable annuities offer the possibility of higher returns and greater income than fixed annuities, but theres also a risk that the account will fall in value. B)cost of living. C) Tax-free municipal bonds C) II and III. b. D) Variable annuity. A variable annuity is both an insurance and a securities product. C) payments continue for a pre-determined period of time. Reference: 12.3.3 in the License Exam. Life with period certain will produce a smaller check for life because the insurance company will guarantee payments to a beneficiary for a certain period of time designated in the contract should the annuitant die within that period. is required by the Securities Act of 1933. *A variable annuity is a security and must be registered with the SEC, not FINRA. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? As of March 03, 2023, had a relative dividend yield of % compared to the industry median of %. must provide full and fair disclosure. A) Fixed Annuity variable An immediate annuity consists of a Single Premium T has an annuity that guarantees an income payment for the rest of his life. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. *The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. During the accumulation phase, you make purchase payments. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. must provide full and fair disclosure. A)accumulation shares. B) value of annuity units. Reference: 12.3.1 in the License Exam. C) single payment immediate annuity. C)the SEC. A) a minimum rate of return is guaranteed. Reference: 12.1.2 in the License Exam, Question #21 of 48Question ID: 606812 The anti-money laundering rules for insurance companies highlight that each insurance company - like other financial institutions subject to anti-money laundering program requirements - must develop a risk-based anti-money laundering program that identifies, assesses, and mitigates any risks of money laundering, terrorist financing, and other D) Age 27, saving for first home. An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are Get Started. D) the payout plans provide the client income for life. Reference: 12.3.1 in the License Exam. In March, the actual net return to the separate account was 8%. D)I and III. For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? C) II and III. Question #24 of 48Question ID: 606806 Reference: 12.1.2.1.1 in the License Exam. D) accumulation shares. 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? D)Municipal bonds. B)value of annuity units. *When money is deposited into the annuity, it is purchasing accumulation units. *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. 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. C)insurance companies keep variable annuity funds in separate accounts from other insurance products. 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. Periodic payment deferred annuity. This role is also eligible for annual short-term incentive compensation. D)accumulation units. All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: D) I and III *The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. Are Variable Annuities Subject to Required Minimum Distributions? Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. regulated under both securities and insurance laws. D)A variable annuity, Variable annuities offer tax-deferred growth and are suitable for achieving supplemental retirement income. B) II and IV. A) II and IV. None of the other investments listed here offer tax-deferred growth. View full document. D) payments continue until age 70-. Inflation-hedging, using both tax deferral combined with market growth potential, is made possible by variable annuities #. Changes in payments on a variable annuity correspond most closely to fluctuations in the: All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: A) two people are covered and payments continue until the second death. A)Corporate debt securities D)value of accumulation units. D) III and IV. Reference: 12.3.4 in the License Exam. Sample problems from Chapter 9. . How is the distribution taxed? The number of accumulation units is always fixed throughout the accumulation period. B)reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. B) taxed as ordinary income. A) Dow Jones Industrial Average. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. A) II and IV. MetLife offers a comprehensive benefits program, including healthcare benefits, life insurance, retirement benefits, parental leave, legal plan services and paid time off. Contributions to a nonqualified variable annuity are not tax deductible. B) The entire $10,000 is taxable as ordinary income. All of the following statements regarding variable annuities are true EXCEPT: They offer broad diversification in the securities market and potential growth, all while using the power of tax deferral. B)IRAs. Which of the following are defined as securities? Question #29 of 48Question ID: 606831 A customer has an investment objective of keeping pace with inflation while assuming moderate risk. Supplemental income stream for retirement, not preservation of capital should be the catalyst to consider a VA and for anyone who may need access to the sum invested for any reason a VA would not be considered a suitable recommendation. D) There is no guarantee regarding the investment results of the separate account. C)I and IV. Carefully look at your options when choosing an annuity. A) a variable annuity contract will provide a fluctuating monthly check upon the annuitization of the contract A) It will be higher. The growth portion is subject to a 10% penalty. Question #18 of 48Question ID: 606827 C) such an annuity is designed to combat inflation risk. Reference: 12.1.4.1 in the License Exam. A) two people are covered and payments continue until the second death. Diagnosis is made by punch biopsy. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. On any device & OS. III) A hierarchy of corporate staff evaluates divisions' plans and performance. The time period depends on how often the income is to be paid. A 3 Transcribed image text: 6. A) I and III. 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. B) payment guarantee. Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps. A) It will be higher. Your 55-year-old client invested $50,000 four years ago in a nonqualified variable annuity. A)equity funds. B) the safety of the principal invested. Policyholders . Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. *BEST Suited for VA-Age 56, available cash to invest, maxes out IRA and 401(k) plan VA will be supplemental income, would not be suitable for cust. If a 42-year-old customer has been depositing money in a variable annuity for 5 years, and he plans to stop investing but has no intention of withdrawing any funds for at least 20 years, he is holding: have investment risk that is assumed by the investor B) I and III. About Us Generally, a life-only contract pays the most per month because payments cease at the annuitant's death. 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. What is the taxable consequence of this withdrawal to your client? A variable annuity is both an insurance and a securities product. The client's investment objectives, tax bracket, investment experience and risk tolerance all align well with a VA recommendation. 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. A) The fact that the annuity payment may increase or decrease. The number of accumulation units is always fixed throughout the accumulation period. A)value of underlying securities held in the separate account. The number of annuity units rises once annuitization begins. Complete a blank sample electronically to save yourself time and money. D) Any time before the accumulation period. The correct answer was: partially a tax-free return of capital and partially taxable. Variable annuities should be considered long-term investments due to the limitations on withdrawals. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. "Variable Annuities: What You Should Know," Page 10. B)I and IV. VAs, blue chip mutual fund portfolios, ETFs and 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)Dow Jones Industrial Average. A guaranteed lifetime annuity promises to pay the owner an income for the rest of their life. Usually the term "annuity" relates to a contract between an individual and a life insurance company. The following are the characteristics or the hierarchy of a trend except A. Gigatrends C. Megatrends B. Macrotrends D. Nanotrends _____11.