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Annuities Part 2 FINAL EXAM (AL 25120)

Posted on 01.03.19

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Question 1 of 50

1. Question
Which of the following best describes some of the appealing aspects of annuity contracts?
- They offer income tax advantages and are useful in retirement planning
- They offer sales tax advantages
- They are wildly risky, but can potentially be very profitable
- They are easy to trick or scare people into buying
Question 2 of 50

2. Question
What is the trade-off when selecting a non-qualified annuity contract?
- Increased tax benefits, but also increased government regulations
- Increased tax benefits, but also reliable return rates
- Reduced government regulations, but also reliable rates of return
- Reduced government regulations, but also reduced tax benefits
Question 3 of 50

3. Question
What is the tax status of investments in annuities?
- They are tax free
- They are tax deferred
- They are taxed
- They are subject to sales taxes
Question 4 of 50

4. Question
What aspects of an annuity contract does the beneficiary directly control?
- The rate of return
- No aspect of the contract
- Choosing when to withdrawal
- Choosing annuitants
Question 5 of 50

5. Question
What is the role of annuities within retirement plans?
- A well established role that only produces positive results
- A well established role that rarely produces positive results
- They are popular, but their role is debated
- They are rarely used, and for good reason
Question 6 of 50

6. Question
When are the earnings from non-qualified annuities taxed?
- When premiums are paid into the annuity
- As interest is earned on the annuity
- When earnings are withdrawn
- When the annuitant dies
Question 7 of 50

7. Question
Which of the following investments would double in value the fastest if they were all invested in the same rate?
- A tax-deferred investment
- A taxable investment
- A tax-free investment
- Both tax-free and tax-deferred investments double at the same rate
Question 8 of 50

8. Question
Which part of non-qualified payments is taxable?
- The return of principal portion
- The first three portions
- The first portion
- The earnings portion
Question 9 of 50

9. Question
Clients who are experienced investors might get the most value out of which of the following?
- CDs
- Mutual funds
- Viatical Settlements
- None of the answers provided are correct
Question 10 of 50

10. Question
Which market group has the least capacity to accept risk?
- Teenagers
- Young adults
- Senior citizens
- All market groups can accept the same amount of risk
Question 11 of 50

11. Question
Which of the following is not a reason to use annuity contracts in retirement planning?
- They are relatively safe.
- They compensate their payouts for inflation.
- They provide tax benefits when accumulating.
- They can provide guaranteed income for a specified period of time.
Question 12 of 50

12. Question
What is the trade-off when selecting a qualified annuity contract?
- Reduced government regulations, but also reduced tax benefits
- Increased tax benefits, but also less reliable return rates
- Increased tax benefits, but also increased government regulations
- Increased tax benefits, but also reduced premiums
Question 13 of 50

13. Question
Generally, non-qualified annuities do not limit which of the following?
- Withdrawals from the annuity
- Interest rates of the annuity
- Contributions to the annuity
- The annuities rate of return
Question 14 of 50

14. Question
Withdrawals from annuities are subject to which of the following?
- Sometimes income taxes and penalties
- Always income taxes and penalties
- Always penalties
- Sometimes income taxes
Question 15 of 50

15. Question
Which of the following best describes the way the IRS views premature withdrawals from qualified plans when compared to similar withdrawals from non-qualified plans?
- Qualified premature withdrawals are typically taxed at normal income rates while non-qualified withdrawals are not.
- Both qualified and non-qualified premature withdrawals are taxed at ordinary income rates.
- Non-qualified premature withdrawals are typically taxed at normal income rates while non-qualified withdrawals are not.
- Both qualified and non-qualified premature withdrawals are not taxed.
Question 16 of 50

16. Question
Which of the following is true of non-qualified annuity contracts?
- Loans made from them have dire tax consequences.
- They always have higher interest rates.
- Loans made from them have little tax consequence.
- They are strictly regulated by the government.
Question 17 of 50

17. Question
What is generally true of exchanging policies?
- It is generally thought to be a good idea.
- It is a good idea if the owner has a non-qualified annuity contract.
- It is generally not a good idea due to a long list of factors.
- It is a good knee-jerk reaction if a variable annuity has been doing badly in recent years.
Question 18 of 50

18. Question
As far as taxes are concerned, liquidating or selling an annuity contract is which of the following?
- Not a taxable event
- A potentially taxable event as long as the owner gains more than just his or her contributions from the liquidation or sale
- A taxable event
- A potentially nontaxable event as long as certain requirements from IRC Section 1035 are met
Question 19 of 50

19. Question
In non-qualified contracts, when the owner dies during the accumulation phase, how much time is allowed for the distribution of the owners death benefit?
- Five years, with one exception
- Five years with no exceptions
- Ten years with one exception
- There is no time limit
Question 20 of 50

20. Question
How does the distribution of a qualified annuity contract differ from other qualified plan distributions?
- It must take place within five years of the owner's death, with one exception.
- There are no significant differences.
- It must take place within five years of the owner's death, with one exception.
- The spouse must the beneficiary in a qualified plan.
Question 21 of 50

21. Question
Why do annuity investments grow to a larger sum than similarly sized investments in CDs?
- They are underwritten by the government and, therefore, cannot fail.
- Annuity investments are tax free while CDs are not.
- Annuity investments are tax free whereas CDs are generally just tax deferred.
- Annuity investments are tax-deferred while CDs are taxed at the investor's marginal tax rate.
Question 22 of 50

22. Question
How can clients with qualified contracts receive a tax break?
- By taking their distribution in a single lump sum
- By giving their distribution back to the insurer
- By taking their distributions in periodic payments determined, in part, by the IRS
- By taking their distributions in period payments determined entirely by the rate of return
Question 23 of 50

23. Question
Which of the following is a goal of careful annuity contract structuring and titling?
- To maximize payout options and minimize taxes and penalties
- Ensuring that the annuitant dies and leaves the value of the annuity to the insurer
- Maximizing premiums and minimizing rates of return
- Maximizing surrender charges and decreasing the client's liquidity
Question 24 of 50

24. Question
The guarantees offered by annuities are generally sought out by what type of investor?
- Wealthy investors
- All types of investors
- Late-start investors
- Lower-income investors
Question 25 of 50

25. Question
Qualified plans within retirement plans function in what way?
- The annuity is distributed out and increases a person's taxable salary.
- Qualified plans are not commonly used in retirement plans
- A person's taxable salary is reduced, after it is taxed, and invested in a multitude of investments.
- A person's taxable salary is reduced, before it is taxed, and invested in a multitude of investments.
Question 26 of 50

26. Question
What is simple interest?
- Interest that is derived from investments and the interest earned on that investment
- Interest that is derived from only the investment
- The lowest interest rate offered by the insurance company
- An interest rate derived only from the interest gained on the principal
Question 27 of 50

27. Question
What is compound interest?
- Interest is not paid out to the holder; instead, it is built up within the investment
- Interest that is derived from only the investment in a principal amount
- The highest interest rate offered by the insurance company
- An interest rate derived only from the interest gained on the principal
Question 28 of 50

28. Question
What is a taxable investment?
- An investment where you do not have to pay taxes on the investment earnings until you withdraw money
- An investment in which you pay taxes every year on the interest, dividends, and appreciation
- An investment in which you do NOT have to pay taxes on the income the investment earns
- An investment in which you pay taxes monthly on the interest, dividends, and appreciation
Question 29 of 50

29. Question
What is a tax-deferred investment?
- An investment in which you pay taxes every year on the interest, dividends, and appreciation
- An investment in which you have to pay taxes on the income the investment earns
- An investment where you do not have to pay taxes on the investment earnings until you withdraw money
- An investment in which you pay taxes monthly on the interest, dividends, and appreciation
Question 30 of 50

30. Question
What is a tax-free investment?
- An investment in which you pay taxes every year on the interest, dividends, and appreciation
- An investment where you do not have to pay taxes on the investment earnings until you withdraw money
- An investment in which you pay taxes monthly on the interest, dividends, and appreciation
- An investment in which you don’t have to pay taxes on the income the investment earns
Question 31 of 50

31. Question
What is the name of a simple formula that is an easy way to show how long it will take one dollar to grow into two dollars in tax-deferred investments?
- IRC Section 1035
- Rule 108
- Rule 72
- The Rule of Fifths
Question 32 of 50

32. Question
What is the name of a simple formula that is an easy way to show how long it will take one dollar to grow into two dollars in taxable investments?
- IRC Section 1035
- Rule 108
- Rule 72
- The Rule of Fifths
Question 33 of 50

33. Question
What is the difference between the taxation of tax-deferred investments and tax-free investments?
- There is no difference for tax purposes
- Tax-deferred investments are taxed when they are withdrawn where tax-free investments are not
- Tax deferred investments are taxed yearly where tax-free investments are not
- Tax deferred investments grow faster than tax-free investments
Question 34 of 50

34. Question
Most annuities are which kind of investment?
- Short-term investments
- Tax-free investments
- Long-term investments
- Bad investments
Question 35 of 50

35. Question
What are the two phases of an annuity?
- Short-term and long-term
- Taxable and tax-deferred
- Variable and fixed
- Accumulation and distribution
Question 36 of 50

36. Question
An arrangement in which one payment buys two annuities is known as which of the following?
- A double annuity
- A duplicate annuity
- A split annuity
- There is no name for this
Question 37 of 50

37. Question
A distribution option that allows a client to receive checks until the death of the annuitant and then give any remaining balance to the insurance company is known as which of the following?
- A lump sum option
- A life option
- A cash refund option
- A joint and last survivor option
Question 38 of 50

38. Question
A distribution option that allows a surviving spouse to continue to receive payments after the other member of the marriage dies is known as which of the following?
- A joint and last survivor option
- A life option
- A cash refund option
- A period certain option
Question 39 of 50

39. Question
A distribution option that ensures at least a minimum payout, regardless of who dies when, is known as which of the following?
- A joint and last survivor option
- A period certain option
- A cash refund option
- A life option
Question 40 of 50

40. Question
A distribution option that pays until the annuitants death and then refunds any remaining investment value to a beneficiary is known as which of the following?
- A life option
- A period certain option
- A cash refund option
- A joint and last survivor option
Question 41 of 50

41. Question
Younger annuity owners have which advantage?
- They are more athletic.
- They are more intelligent and can pick better annuities.
- They have more time to let the tax-deferral advantage work for them.
- They receive lower withdrawal penalties and surrender charges.
Question 42 of 50

42. Question
Annuity owners under 59.5 years of age have which disadvantage?
- They have less time to let their money grow.
- The IRS puts a penalty on funds withdrawn from their annuities.
- They are required to buy the products with the highest risks.
- They are reckless and are given worse return rates.
Question 43 of 50

43. Question
Seniors wishing to limit their risk should invest in which of the following?
- CDs
- Mutual funds
- Stocks
- Bonds
Question 44 of 50

44. Question
Individuals that want the highest returns should invest in which of the following?
- CDs
- Mutual funds
- Savings accounts
- Money market accounts
Question 45 of 50

45. Question
Which of the following should NOT be the focus of a senior citizens investment portfolio?
- Maximizing income
- Minimizing taxes
- Investing in long-term plans
- Retaining principal
Question 46 of 50

46. Question
Which of the following will completely cover a senior citizens long term care?
- Medicare
- None of the answers listed completely cover long term care
- Medicaid
- HMOs
Question 47 of 50

47. Question
Ethically, who is responsible for making sure a senior client is making an informed decision?
- The agent
- The client
- The insurer
- The client's relatives or caregivers
Question 48 of 50

48. Question
Why is liquidity especially important for senior clients compared to other clients?
- They might find a good investment and not have the liquidity to purchase it.
- They may need to pay for unexpected health costs or long term care.
- They may have a child and need to cover hospital bills and childcare.
- They may want to purchase a house.
Question 49 of 50

49. Question
Insurance sales should be which of the following?
- Commission-based
- sales-based
- Needs-based
- Intuition-based
Question 50 of 50

50. Question
Annuities are popular with late-start investors for which of the following reasons?
- There is typically no contribution limit.
- Annuities are risky but rewarding.
- Annuity payouts compensate for inflation.
- Annuities pay for all long term care.

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