Reference: 12.3.3 in the License Exam. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. Payments from a variable annuity depend on the securities' value in the separate account's underlying investment portfolio. Her agent recommended she choose a variable annuity as a safe haven for the funds. The contract has a schedule of surrender charges, beginning with a 7% charge in the first year, and declining by 1% each year. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. continues payments as long as one annuitant is alive. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. A fixed annuity is a contract between the policyholder and an insurance company. Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. Which of the following recommendations would best meet the customer profile? C)insurance companies keep variable annuity funds in separate accounts from other insurance products. Which of the following are defined as securities? A registered representative explaining variable annuities to a customer would be CORRECT in stating that: D)variable annuities. Fixed period annuities A fixed period annuity pays an income for a specified period of time, such as ten years. In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. Variable Annuities. 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. C)the payout plans provide the client income for life. 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. The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? 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? Money in a variable annuity is invested in a fundlike a mutual fund but one open only to investors in the insurance companys variable life insurance and variable annuities. B)I and III. Equity-Indexed Annuity: How They Work. and Their Limitations - Investopedia Reference: 12.1.4 in the License Exam. For anyone who may need access to the sum invested at a later time, a VA would not be considered a suitable recommendation. The payout compared to last month's payout. A client has purchased a nonqualified variable annuity from a commercial insurance company. For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. As with most retirement account options, withdrawals before the age of 59 will result in a 10% tax penalty. 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? VAs, blue chip mutual fund portfolios, ETFS & 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. C)prime rate. B)IRAs. D)separate account may consist of mutual funds. Question #25 of 48Question ID: 606819 Reference: 12.1.2 in the License Exam. A)II and III. The separate account is NOT likely to invest in: Your answer, municipal bonds., was correct!. He originally invested $29,000 4 years ago; it now has a value of $39,000. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: B) the yield is always higher than bond yields, C) the yield is always higher than mortgage yields, D) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. 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. a variable annuity guarantees payments for life. B)suitable regardless of funding sources B.The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. A variation of lifetime annuities continues income until the second one of two annuitants dies. Many variable annuities invest the separate account in mutual funds. An annuitant assumes the investment risk of a variable annuity and is not protected by the insurance company from capital losses. D)partially a tax-free return of capital and partially taxable. 7. What is the taxable consequence of this withdrawal to your client? Reference: 12.2.1 in the License Exam. U.S. Securities and Exchange Commission. How to Rollover a Variable Annuity Into an IRA. An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. During the payout period, payments are based on a fixed number of annuity units established when the contract was annuitized. 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, Annuity Table: Overview, Examples, and Formulas, Present Value Interest Factor of Annuity (PVIFA) Formula, Tables. Variable Annuities | Investor.gov Must provide full and fair disclosure, 2. D) a VA contract is subject to fluctuating values due to market fluctuations in the underlying separate accounts. Question #36 of 48Question ID: 606805 Question #47 of 48Question ID: 606813 The number of accumulation units can rise during the accumulation period. Variable annuities provide protection from inflation because their monthly income can increase depending on the separate account's performance. Fixed Annuity, Retirement Annuities: Know the Pros and Cons. through (l), indicate whether the proper answer is a debit or a credit. C)Corporate bonds. Meanwhile, options like an annuity can provide a guaranteed income during, With a deferred annuity, you make a one-time payment to the insurance. Reference: 12.3.3 in the License Exam. A variable annuity is both an insurance and a securities product. Since the client is older than 59 at the time of distribution, the additional 10% penalty tax is not incurred. If an annuitant lives longer than expected, the ins. Reference: 12.1.2.1.1 in the License Exam. Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. Question #29 of 48Question ID: 606831 A customer has an investment objective of keeping pace with inflation while assuming moderate risk. While variable annuities have greater potential for earnings, since their interest rate rises and falls with their underlying investments, they can lose money. In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. In addition, an element of risk must be present. This factor is used to establish the dollar amount of the first annuity payment. The largest monthly check an annuitant can receive for the rest of his life is generated by a straight life (life income or life only) payout option. Each of the remaining statements are true. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? Copyright 2023, Insurance Information Institute, Inc. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. 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. B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero a variable annuity does not guarantee an earnings rate of return. Investopedia requires writers to use primary sources to support their work. Distributions from nonqualified variable annuities are: Your 55-year-old client owns a nonqualified variable annuity. Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. Reference: 12.3.3 in the License Exam. In the case of deferred annuities, this is often referred to as the accumulation phase. The number of annuity units is fixed at the time of annuitization. B)II and III. The growth portion is taxed as ordinary income. have investment risk that is assumed by the investor A)Corporate debt securities As with all tax-deferred accounts, municipal bonds are not appropriate investments because interest earned on municipals is already tax exempt at the federal level. Who assumes the investment risk in a variable annuity contract? An investor owning which of the following variable annuity contracts would hold accumulation units? The number of accumulation units is always fixed throughout the accumulation period. C)annuity units. The nature of the securities invested in-bonds and growth stocks-makes it necessary that sales representatives and their principals be licensed in securities as well as insurance. This recommendation is: A variable annuity is a type of annuity contract, the value of which can vary based on the performance of an underlying portfolio of sub accounts. B)corporate stock. All of the following statements concerning a variable annuity are correct EXCEPT: The customer, in the accumulation stage of the annuity, is holding accumulation units. The number of accumulation units is always fixed throughout the accumulation period. Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. There are many categories of annuities. FINRA. The most popular type of variable annuity is a deferred annuity. 2003-2023 Chegg Inc. All rights reserved. All of the following statements are true regarding both mutual funds and variable annuities EXCEPT: a. the return to investors is dependent on the performance of the securities in the underlying portfolio b. the investment company act of 1940 is the regulating legislation c. distributions from the underlying mutual fund are taxable to the holder in the year the distribution is made d. the . 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. C)suitable due to the death benefit features of a variable annuity. The tax on this is $2,800 ($10,000 x 28%). Your answer, Variable annuity., was correct!. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor?

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