Understanding Indexed Products FINAL EXAM (TX 124894)

Which statement correctly describes a split annuity?

Alice says, “I’m interested in annuities that invest in securities.” To which product(s) is she referring?

What is the most prominent feature of an indexed annuity that distinguishes it from other types of annuities?

When a crediting rate is to be based on the earnings of the insurer’s total portfolio of assets, the rate is said to be which of the following?

Jan wants to keep her annuity contract in force for a certain number of years. If she does so, the contract will pay a higher rate. What type of bonus is available with Jan’s contract?

Jason compared the guaranteed minimum interest rates for his fixed deferred annuity contract with market rates. If his deferred annuity is typical, he most likely found that the guaranteed minimum interest rate was ____________________.

A prospect asks you to explain the purpose of a waiver such as a nursing home or terminal illness waiver. Which of the following answers would you give?

What is the typical means for determining the amount of an annuity surrender or withdrawal charge?

Your prospect, George, asks, “Isn’t there a feature of some annuities that causes the rate to be paid differently if the owner makes a withdrawal or surrenders the contract before the end of a specified guarantee period?” If there is such a feature, what is it called?

Sharon owns an annuity and wants to receive payments only for a specific number of years, even if she dies before the end of that time period. Which annuitization option do you recommend?

When a client asks you to describe an annuity’s extended payout or “stretch” option, which of the following answers do you give?

Select the one correct statement from the following list.

A certain insurer’s indexed annuity contract promises that the owner will be eligible to earn exactly the same interest rate gain as the linked index experiences. This is an example of which of the following?

A certain insurer’s annuity contract provides that the participation rate is 100% and the cap rate is 7.5%. If the index gain is 10%, what rate of interest will be credited to the annuity account?

A certain insurer’s annuity contract provides that the participation rate is 80% with no cap. If the index gain is 10%, what rate of interest will be credited to the annuity account?

Suppose an indexed annuity contract includes an 80% participation rate, no cap, and a 3% spread. If the index gain is 10%, what is the rate that will be credited to the annuity?

In explaining the “moving parts” of an indexed annuity to a prospect, you cover all of the following EXCEPT which one?

A client who owns a participating whole life insurance policy asks you about dividends. You list a few situations that can result in dividends. Which of the following is NOT a part of your explanation?

What type of indexed crediting strategy compares the index value at the beginning of the contract year with its value at the end of the contract year, then uses the ending value as the beginning value for the next contract year?

John wants to reallocate his premiums among strategies after the annuity contract is in force. Based on your knowledge of what is typical for most insurers, which of the following statements is NOT correct?

Which of the following might be the likeliest choice for an individual in poor health who needs to use funds to pay for health care costs right now, but would also like to earn interest on the savings currently being used for this purpose?

Interest is generally taxable when credited for all of the following EXCEPT which one?

The guaranteed rate an insurer will pay on an indexed annuity during an interest crediting period is known as the __________________________.

Select the true statement.

Charlie’s annuity contract allows free withdrawals each year of up to 10% of the contract’s cash value. Anything above that will be subject to a withdrawal charge that starts at 10% in year one and decreases by 1% per year. In year 5, Charlie withdraws $12,000—12% of his cash value. Will he have to pay a fee for this withdrawal?

Annette, age 55, withdraws funds from her annuity. Is there a penalty for this withdrawal? If so, what is the penalty?

Mark, an annuity owner who is also the annuitant, is preparing to select a settlement option. Which annuity settlement option will provide him with the largest periodic payment, assuming all other factors are the same?

Paul, an annuitant, chose a period certain payout. He died before the period ended. His beneficiary is his wife, Marian. What happens now?

A certain type of annuity produces payments that are considered to be partly a return of premium that is not taxable when distributed, and partly earnings, which are taxable upon distribution. What type of annuity is this?

A calculation that compares the premiums paid into the annuity contract to the expected return in order to determine the tax-free portion of annuitized payments results in which of the following?

Which of the following is NOT one of the reasons fixed annuities are attractive to individuals for retirement savings purposes?

People over age 65 are likely to find each of the following to be an advantage of having an annuity EXCEPT which one?

Bob is a widower. He owns an annuity and wants to receive payments for life. However, Bob is a pessimist; therefore, he’s afraid he’ll die just as payments begin. Which annuitization option do you recommend?

Another agent comments that he’s not surprised he sells more ____________ than any other product, because it’s the best known and most widely used type of interest sensitive life insurance.

An individual has a certain type of life insurance policy that requires the insurer to deposit the premiums into separate accounts, which can control the death benefit and cash value amounts. What type of policy is this?

In an indexed life insurance policy, a “bucket” refers to which of the following?

Caroline has an indexed life insurance policy that has been in force for one year. She pays a premium that she wants to allocate to a strategy different from the current strategy she had selected. Which of the following statements is true with respect to this latest premium payment?

Your friend William owns an indexed life insurance policy with a segment term of five years. He asks you on what date the change in the index is calculated and when crediting occurs. You answer that although insurance company practices differ, it would typically occur _____________________________.

Sue owns an indexed life insurance policy that does not offer an annual minimum guaranteed interest rate. The linked index produces a loss of (2%). What is the minimum credit her policy will receive?

Norm, age 55, is an annuity prospect. Which of the following is NOT one of the advantages you will review with him?

Which of the following describes an alternative minimum guaranteed rate that is sometimes found in an indexed life insurance policy?

Insurer ABC offers an indexed life insurance policy with a feature that guarantees to credit 0.5% of the average monthly account value annually when the policy begins its 10th year in force. What is this feature called?

Select the statement that is true with respect to indexed life insurance cash value withdrawals and surrenders.

Carol’s family history of cancer makes her nervous about how she would pay her medical bills if she becomes a cancer patient. Which rider would you recommend that permits a percentage of the indexed life insurance policy death benefit to become available to an insured with a terminal illness expected to result in death in 12 months or less?

Which of the following situations shows Joe Producer acting incorrectly with respect to illustration requirements?

Suppose the current index gain is 12%. The previous period’s gain was 11%. The indexed life insurance policy’s participation rate is 100% and the cap is 9%. The insurer is using the annual point-to-point crediting method. What percentage will be credited to the account value for this segment term?

Marie has purchased an annuity. Under which of the following circumstances do the insurer and the producer have an obligation to her?

An agent makes a recommendation. The insurer reviews it to ensure suitability. Why?

When you are determining an individual’s suitability for an annuity, you need to look at all of the factors that follow EXCEPT which ones?

Your client, Brian, is 50 years old. He expects to need the money he’s investing for retirement at age 70, and has a life expectancy of 85 years. Which of the following represents Brian’s time horizon?

You’re meeting with Martha, an elderly client. You haven’t seen her in a couple years. Which of the following would NOT cause doubts as to whether or not she is still mentally competent and is able to understand the product you are selling?

Under what type of indexed crediting strategy is the rate based on the difference between the index value at the start of the term and the highest value at certain points during the term?

You expect to take an annuity application in an upcoming face-to-face interview. When do you need to deliver the disclosures to the applicant or owner?

You are cleaning out your office filing cabinet and come across information used in making insurance transaction recommendations. In most states, you would be safe throwing away

After meeting with Diane, an elderly client, you have doubts about her competence to make a buying decision with respect to insurance products. What should you do?

Roxanne uses one of her premium payments to purchase an immediate annuity and a deferred annuity. This concept is known as a _____.

Sherman receives a crediting rate based on the portfolio of his insurers’ total assets. This is known as a(n) _____ rate.

Wei’s annuity contract offers a persistency bonus. This means that if she _____, her contract will pay out at a higher rate.

Generally speaking, the market interest rates are _____ those for a fixed deferred annuity contract.

An annuity’s surrender charge is typically a(n) _____ of the policy’s accumulation value.

Pietro wants to receive annuity payments for 15 years, regardless of any changing life circumstances. So, he purchases a(n) _____ annuity contract.

Yvonne’s annuity contract allows the beneficiary, her daughter, to extend the payout period to better accommodate her life expectancy. This is possible due to the annuity’s _____ option.

As an indexed annuity’s linked index decreases, the contract’s accumulation value _____.

Sacha’s annuity contract offers a participation rate. This enables Sacha to receive _____.

An annuity contract’s _____ controls the maximum credited interest rate.

XYZ Insurer’s annuity contract provides a no-cap participation rate of 90%. If the index gain is 10%, what rate of interest will be credited to the annuity account?

Mel’s annuity contract features an 80% participation rate with a 9% cap rate. If the linked index gain is 10%, what rate of interest will be credited to the annuity account?

Rhiannon’s annuity contract features a no-cap participation rate of 90% with a 4% spread. If the linked index gain is 20%, what is the rate of interest credited to the account?

When explaining an indexed annuity’s “moving parts” to a prospect, which of the following concepts will you cover?

An increase in the insurer’s investment earnings and savings in claims due to lower-than-anticipated mortality are examples of a whole life policy’s potential to provide _____.

The _____ indexed crediting strategy compares the index value at the beginning of the contract year with its value at the end of the contract year, then uses the ending value as the beginning value for the next contract year.

A(n) _____ contract can help Morgan pay for his ongoing dialysis treatment while letting him earn interest on the savings used for the contract.

Of mutual funds, stocks and bonds, CODs, and annuities, interest credited to annuities is the only type that is generally _____

The minimum annual credited interest rate is the _____ rate an insurer will pay on an indexed annuity.

A(n) _____ rider added to an annuity allows for a separate pool of money for the named purposes.

Lana’s annuity contract allows free annual withdrawals of up to 10% of the contract’s cash value. Anything above that will be subject to a withdrawal charge that starts at 10% in year 1 and decreases by 1% per year. In year 3, Lana withdraws $15,000—15% of the cash value. What will be her total withdrawal fee?

Miguel’s annuity contract allows free annual withdrawals of up to 10% of the contract’s cash value. Anything above that will be subject to a withdrawal charge that starts at 10% in year 1 and decreases by 1% per year. In year 6, Miguel withdraws $9,000—9% of the cash value. What will be his total withdrawal fee?

A 55-year-old annuity owner will incur a ___ penalty tax of the amount withdrawn and income taxation on gain.

Jan’s annuity produces payouts that are considered returns of premium. Such payouts are _____.

The _____ ratio calculates the tax-free portion of annuitized payments by comparing the premiums paid into the annuity contract to the expected return.

Maria is 76 years old and considering an annuity. Which of the following benefits can she expect?

For the 10th consecutive year, _____ is the top-selling product at ADL Life Insurance. This is likely because it is the most widely used type of interest-sensitive life insurance.

A ______ life insurance policy’s premiums are deposited into separate accounts that control the death benefit and cash value amounts.

Denise’s indexed universal life policy allocates 15% of her premium to an S&P strategy. This allocation amount is known as a(n) _____.

Benjamin’s indexed life policy has a segment term of three years. Typically, the index change will be calculated on _____.

Certain indexed life policies offer an alternative minimum guaranteed rate. One featured alternative is a provision stating that _____.

Patrice’s indexed life policy guarantees that after its 5th year in force, she’ll receive an annual 1% credit of the average monthly account value. This feature is known as a(n) _____.

When a withdrawal is made on an indexed life insurance policy:

Quique’s indexed life policy allows him to access part of his death benefit if he is diagnosed with a terminal illness that will likely cause his death within 12 months. This is possible due to the policy’s _____.

Elana, an insurance producer, has begun a meeting with a new prospect. Which of the following actions represents improper behavior regarding illustration requirements?

The current index gain is 13%. The previous period’s gain was 11%. The indexed life insurance policy’s participation rate is 100% and the cap is10%. The insurer is using the annual point-to-point crediting method. What percentage will be credited to the account value for this segment term?

Which of the following statements about suitability is TRUE?

Which of the following factors should be considered when reviewing a prospect’s suitability for an annuity?

The amount of time until a prospect needs the money they’re investing is called the ____.

Which of the following client behaviors may cause doubt as to their mental competence?

The index crediting strategy that uses the difference between the index value at the start of the term and its highest value at certain points during the term is called _____.

Leslie is meeting a client with the expectation that the client will fill out an annuity application. Leslie must provide the relevant disclosures _____ the application is submitted.

Jeannie works for XYZ Life Insurers and is re-organizing files after the office relocates. She discovers an information sheet used to help make recommendations about insurance transactions. In most cases, she would be safe to discard the document if the contained information is _____.

Which of the following settlement options guarantees that premiums paid will be distributed to beneficiaries if the annuitant dies before receiving payments equal to the purchase price of the annuity?

What is the tax treatment of interest earned on a non-qualified annuity during the accumulation phase?