Question 1

An annuity is designed primarily to protect against which financial risk?

Accepted Answer

An annuity's core purpose is to guard against longevity risk, the possibility of outliving one's savings, by liquidating an accumulated sum into a stream of income that can be guaranteed for life.

Question 2

In an annuity contract, which party is the natural person whose life expectancy is used to calculate the benefit payments and on whose life the payout is based?

Accepted Answer

The annuitant is the person whose age and life expectancy determine the payout amount; the owner purchases and controls the contract, while the beneficiary receives any death benefit.

Question 3

During which phase of an annuity does the owner deposit money that grows on a tax-deferred basis before any income payments begin?

Accepted Answer

The accumulation phase is the pay-in period during which premiums are deposited and grow tax-deferred; the annuity or payout phase is when the accumulated value is converted into an income stream.

Question 4

A retiree pays a single lump sum to an insurer and begins receiving monthly income payments 30 days later. This product is best described as a:

Accepted Answer

A single premium immediate annuity (SPIA) is funded with one lump-sum payment and begins income payments within about one year of purchase, making it ideal for someone entering retirement with a lump sum.

Question 5

Which type of annuity requires the producer to hold a securities registration in addition to a life insurance license, because the funds are held in a separate account and invested in securities?

Accepted Answer

A variable annuity's premiums are placed in a separate account invested in securities, so it is regulated as a security and requires a FINRA securities registration in addition to a life license.

Question 6

In a fixed annuity versus a variable annuity, who bears the investment risk in each?

Accepted Answer

A fixed annuity guarantees a minimum interest rate, so the insurer bears the investment risk; a variable annuity's value fluctuates with separate-account performance, so the owner bears the investment risk.

Question 7

An indexed annuity credits interest based on the performance of an external benchmark such as the S&P 500 while guaranteeing a minimum interest rate. This product is best characterized as:

Accepted Answer

An equity indexed annuity is a type of fixed annuity that credits interest linked to a market index but includes a guaranteed minimum floor, protecting principal from market losses.

Question 8

Which annuity settlement option pays the largest monthly income to a single annuitant but stops all payments at the annuitant's death with no refund or payment to a beneficiary?

Accepted Answer

Straight life pays the highest income because it makes payments only for the annuitant's lifetime with no guarantee of a minimum number of payments; when the annuitant dies, payments cease entirely.

Question 9

An annuitant selects a life income with 10-year period certain option and dies after receiving payments for 4 years. What happens to the payments?

Accepted Answer

Life with period certain guarantees payments for at least the stated period; because the annuitant died within the 10-year certain period, the beneficiary collects the remaining 6 years of guaranteed payments.

Question 10

Which payout option guarantees that if the annuitant dies before receiving payments totaling the amount originally paid in, the beneficiary receives the difference in installments until that amount is reached?

Accepted Answer

The installment (or cash) refund option guarantees that total payments equal at least the amount paid into the annuity; the installment refund continues periodic payments to the beneficiary until that sum is recovered.

Question 11

A married couple wants annuity income to continue for as long as either spouse is alive, with payments ending only when both have died. Which settlement option meets this need?

Accepted Answer

A joint and survivor option pays income while either annuitant is living and ceases only after both have died, providing continued income to the surviving spouse.

Question 12

An annuity owner withdraws a large portion of the contract's value during the sixth year of a deferred annuity and the insurer deducts a charge from the amount withdrawn. This charge is known as a:

Accepted Answer

A surrender charge is a penalty deducted when an owner withdraws funds in excess of allowed limits during the surrender period; the charge typically declines each year until it eventually reaches zero.

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