A client has purchased a nonqualified variable annuity from a commercial insurance company. Your 65-year-old client owns a nonqualified variable annuity. Transcribed image text: 6. However, they are protected by state guaranty associations in the event that the insurance company providing the product goes out of business. The value of accumulation and annuity units varies with the investment performance of the separate account. Round to the nearest hundredth of a percent. What type of annuity has a cash value that is based upon the performance of it's underlying investment funds? B) Life annuity. A) A 75 year old women, who is a former executive retired for over ten years who wants to preserve as much capital as she can to leave to her two grandchildren. FINRA. A)I and IV. B)I and IV. The annuitant may not contribute and withdraw simultaneously. The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. D) accumulation shares. All of the following statements about variable annuities are true EXCEPT: When the second party dies, all payments cease. A) There is no risk in a variable annuity. Question #20 of 48Question ID: 606808 B) II and IV. C) Tax-free municipal bonds Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount. C) II and IV. Future annuity payments will vary according to the separate account's performance. A) number of annuity units. *Variable annuity contracts were devised to help investors keep pace with inflation. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. However, it does guarantee payments for life (mortality). c) Construct a contingency table showing all the joint and marginal probabilities. A)III and IV. C) I and III. D)II and III. B)a minimum rate of return is guaranteed. B) single payment deferred 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. A customer has a nonqualified variable annuity. C) the yield is always higher than bond yields. B)a majority vote from the shareholders is required to change the investment objectives. B) I and II. A) The policy provides a minimum guaranteed death benefit. A) I and III. A)II and IV. d. Each month the payment will increase, decrease, or remain the same as the previous month's payment . Reference: 12.2.1 in the License Exam. 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. D) value of accumulation units. 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 A)100% tax free. b) What probability is the 20%20 \%20% mentioned above? Here is how guaranteed lifetime annuities work. Prudential Retirement Security Annuity VI is a group variable annuity (GVA) issued by Prudential Retirement Insurance and Annuity Company (PRIAC) which utilizes a Separate Account offered D) Joint and last survivor annuity. A)There is no tax as the withdrawal is considered return of capital. An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are. C) single payment immediate annuity. B)II and III. A) Life-only annuity B) During the accumulation period. No paper. Which of the following is not a characteristic of a program module? D)I and III. If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? A) the investment portfolio is managed professionally. U.S. Securities and Exchange Commission. A)unsuitable because the return on something as conservative as a variable annuity tends to be low. Securely download your document with other editable templates, any time, with PDFfiller. must be filed with FINRA. *A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. D)Variable annuity. Full-Time. 8 annuities provide a guaranteed rate of return, whereas annuities provide conservative to aggressive investments whose rates of return are not guaranteed. B) the rate of return is determined by the underlying portfolio's value. \hspace{7pt} b. January 444, to record the employers payroll taxes on the payroll to be paid on January 444. The fees on variable annuities can be quite hefty. Variable annuities are designed to combat inflation risk. The separate account is NOT likely to invest in: An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: The following information about the payroll for the week ended December 303030 was obtained from the records of Vienna Co.: Salaries:Deductions:Salessalaries$670,000Incometaxwithheld$198,744Warehousesalaries110,000Socialsecuritytaxwithheld51,714Officesalaries234,000Medicaretaxwithheld15,210$1,014,000U.S. These contracts come with high surrender charges. When a variable annuity contract is annuitized, the number of annuity units is fixed. *Once a variable annuity is annuitized, the accumulation units are converted into a fixed number of annuity units. Reference: 12.1.2.1.1. in the License Exam. PGIM Fixed Income has over $900 billion in assets under management across a broad array of fixed . A) two people are covered and payments continue until the second death. Spartan Technology Services and Solutions Private Limited is a subsidiary of IBM (International Business Machines) Corporation. C) II and III. How is the distribution taxed? A)the state banking commission. Science Health Science Nursing. Question #16 of 48Question ID: 606807 They are also riddled with fees, which can cut into profits. Anthony Battle is a CERTIFIED FINANCIAL PLANNER professional. D)an accounting measure used to determine payments to the owner of the variable annuity. Life Insurance vs. Annuity: What's the Difference? This cloud model is composed of five essential characteristics, three service models, and four deployment models. A) The entire amount is taxed as ordinary income, because it is not life insurance. 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? Determine whether the following events are independent or dependent. D) a lifetime withdrawal benefit (LWB) or lifetime income benefit is generally in the form of a rider attached to the contract which will come at a cost to the annuitant. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. An annuity is a continuous stream of equal periodic payments from one party to another for a specified period of time to fulfill a financial obligation. Following the transition to T+1 in the U.S. markets, Commission staff will continue to work with industry leaders, public interest advocates, investors and other regulators to assess the future feasibility of a T+0 settlement standard cycle, and seek to identify ways to overcome the challenges associated with such a move, as articulated in the . D) an accounting measure used to determine the contract owner's interest in the separate account. D) I and III. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. Then find the probability of the event. D) I and IV. is required by the Securities Act of 1933. B) IPO. In the case of deferred annuities, this is often referred to as the accumulation phase. In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. D) be paid to the issuing company to complete the plan. *Funding a VA contract by cashing out either life insurance policies or existing VA contracts, especially those held for a short period of time is not suitable. A prospectus for a variable annuity contract: 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. covers more than one person. Any withdrawals you make prior to the age of 59 may also be subject to a 10% tax penalty. *Distributions from a nonqualified plan represent both a return of the original investment made in the plan with after-tax dollars (a nontaxable return of capital) and the income from that investment. The correct answer was: partially a tax-free return of capital and partially taxable. To comply with Regulation SP, a brokerage firm is required to do all of the following EXCEPT: A) deliver an annual notice of its information collecting and sharing policies to all customers. The value of the annuity units is fixed. Reference: 12.1.1 in the License Exam. A) Any tax due is deferred. A) waiver of premium Reference: 12.1.2 in the License Exam, Question #21 of 48Question ID: 606812 *A variable annuity may only be surrendered during the accumulation period. What Are Ordinary Annuities, and How Do They Work (With Example)? A registered representative explaining variable annuities to a customer would be CORRECT in stating that: On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). You can buy an annuity with either a lump sum or a series of payments, and the accounts value will grow accordingly. The number of annuity units is fixed. A)variable annuities may only be sold by registered representatives. An individual retirement annuity is an investment vehiclesimilar to an individual retirement accountthat is offered by insurance companies. B)I and II He makes several statements regarding the contract. B) fixed payments for 10 years, followed by variable payments for life. D)variable annuities. You have 4 clients each expressing interest in a variable annuity contract. C) III and IV If the customer takes a withdrawal of $10,000, what are the tax consequences? Question #45 of 48Question ID: 606795 The investor purchased accumulation units. For a retired person, which of the following investments would provide the greatest protection against inflation? D) the yield is always higher than mortgage yields. You can tailor the income stream to suit your needs. This describes which of the following annuities? As the name implies, the investment performance of a variable annuity's portfolio (separate account) can vary, and the investor bears the risk of any potential decline in its value. D) II and IV. II) It has an internal capital market wherein each division competes for funds. Reference: 12.3.3 in the License Exam. D)I and III. C)II and IV. Funding a VA contract by cashing out either life insurance policies or existing VA contracts, especially those held for a short period of time is not suitable. A passion for serving customers and a personal commitment to following through in a dynamic, fast-paced environment. C) value of underlying securities held in the separate account. Reference: 12.1.2 in the License Exam. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. B) taxed as ordinary income. Sub accounts and mutual funds are conceptually. B)IRAs. Reference: 12.1.2.1.2 in the License Exam. On any device & OS. Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. Reference: 12.3.3 in the License Exam. Variable annuity salespeople must be registered with FINRA and the state insurance department. If the annuitant dies during the accumulation period, his/her beneficiary will receive the promised annuity payments. D) variable annuities may only be sold by registered representatives. An investor owning which of the following variable annuity contracts would hold accumulation units? C)not suitable because a lifetime income rider is only for someone who is already retired Periodic payment deferred annuity. The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. \hspace{10pt} \text{Sales salaries} & \$\hspace{5pt} 670,000 & \hspace{10pt} \text{Income tax withheld} & \$198,744\\ D) 4200. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. Reference: 12.1.2 in the License Exam, Question #23 of 48Question ID: 901858 ($5,000) to a stock fund. B)cost of living. Variable annuity Which of the following is characteristic of fixed annuities? the SEC. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. regulated under both securities and insurance laws. CDs insured by the FDIC. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? C)the number of annuity units is fixed, and their value remains fixed. IV. B)I and III. C)none of these. C) insurance companies keep variable annuity funds in separate accounts from other insurance products. 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: *Since this is a nonqualified annuity (with no tax deduction), the client pays taxes only on the growth portion or, in this case, $10,000. II. A variable annuity is just a tax-deferred annuity in which you get to choose how the value of the annuity is invested. *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. B)each annuity unit's value varies with time, but the number of annuity units is fixed. B) The policyowner. a variable annuity does not guarantee an earnings rate of return. The client's investment objectives, tax bracket, investment experience and risk tolerance all align well with a VA recommendation. Distribution can take place before or during any solicitation for sale. C)the yield is always higher than bond yields. A single lump-sum investment is made, and payments begin immediately, since the investor has purchased annuity units. Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? Annuities due are a type of annuity where payments are made at the beginning of each payment period. Question #17 of 48Question ID: 606802 Based on this information the RR should: can be sold by someone with only an insurance license 5 Q All of the following are characteristics of variable whole life EXCEPT the premium is level there is no guaranteed cash value there is no guaranteed minimum death benefit. A) Ordinary income tax on earnings exceeding basis. C) value of underlying securities held in the separate account. B)Two-thirds of the withdrawal is taxable as ordinary income. A) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero B) with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually Both products typically have a wide range of options across equities, bonds and money market instruments. B)100% taxable. Question #19 of 48Question ID: 606826 Given that all of the current retirement investments are subject to market risk, the customer wants these new funds to have no market risk exposure. &&& \underline{\underline{\$341,718}} B) II and III. D) I and II. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. (The exception is the fixed income annuity, which has a moderate to high payout that rises as the annuitant ages). For example, when paying rent, the rent payment (PMT) C)It will be higher. A) Age 56, available cash to invest, makes the maximum retirement plan contributions to an existing IRA and 401(k) plan Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. A) 4000. A)Corporate debt securities 's dividend yield was % last year. If you need to withdraw money from the account because of a financial emergency, you may face surrender fees. Usually the term "annuity" relates to a contract between an individual and a life insurance company. The funds in an annuity are off-limits to creditors and other debt collectors. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. An investor who has purchased a nonqualified variable annuity has the right to: Contributions to an IRA may be tax deductible, depending on the individual's earnings and participation in a company-sponsored qualified retirement plan. The tax on this is $2,800 ($10,000 x 28%). C) II and III. B)variable annuities are classified as insurance products. Complete a blank sample electronically to save yourself time and money. The number of annuity units is fixed at the time of annuitization. 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 entire amount is taxed as ordinary income. Reference: 12.3.3 in the License Exam. An annuity is an agreement for one person or organization to pay another a series of payments. Table1. A variable annuity is both an insurance and a securities product. II. C) 10% penalty plus payment of ordinary income tax on all funds withdrawn exceeding basis. D) II and IV. A) Money market fund. Drives - are hardwired characteristics of the brain that correct deficiencies or maintain an internal equilibrium by producing emotions to energize individuals. B) The entire $10,000 is taxable as ordinary income. C)3800. required to be located off of the company's premises. *VAs are less suitable for individuals who have not yet made maximum contributions to other retirement accounts such as IRAs and 401ks. *An immediate annuity has no accumulation period. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? By clicking Accept All Cookies, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. The LATF-adopted ILVA Actuarial Guideline has an effective date of July 1, 2024 for contracts, riders or endorsements issued on or after that date. *Accumulation units represent units of ownership in a life insurance company's separate account when the contract is in the accumulation stage. Premiums made into the annuity purchase accumulation units. B) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. Vaccine has decreased the incidence. B)fixed in value until the holder retires. 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. If you die before the payout phase, your beneficiaries may receive a. 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. P=525p2+65,326p185,000E=326p+185,000P=-525 p^{2}+65,326 p-185,000 \quad E=-326 p+185,000P=525p2+65,326p185,000E=326p+185,000. Fixed interest rates during the payout period The value of each accumulation unit varies: Daily Variable annuities have Variable interest rates and benefits All of the following statements are true regarding the interest rate guarantees of fixed annuities, EXCEPT: B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero A) mutual fund units. Reference: 12.1.2 in the License Exam. A. D) II and IV. D) cost of living. D) an accounting measure used to determine the contract owner's interest in the separate account. Deferred Annuity Definition, Types, How They Work, What Is a Fixed Annuity? D)Joint and last survivor annuity. An annuity payment is the dollar amount of the equal periodic payment in an annuity environment. At the end of the year, your account has a value of $10,750 ($5,500 in the stock fund and $5,250 in the bond fund), minus fees and charges. \hspace{7pt} a. December 303030, to record the payroll. For an insurance company, mortality risk turns out unfavorably if: D) 100% tax deferred. The number of annuity units rises once annuitization begins. Fixed annuities are not considered securities as return is guaranteed by the insurance company issuer. Fixed annuities typically earn at a lower, stable rate. A) an accounting measure used to determine payments to the owner of the variable annuity. D)II and III. b. Single payment deferred annuity. D)each annuity unit's value is fixed, but the number of annuity units varies with time. None of the other investments listed here offer tax-deferred growth. A) mortality guarantee. 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. C)Life annuity. An investor who purchases a fixed annuity contract assumes purchasing-power risk. *A variable annuity is a security and must be registered with the SEC, not FINRA. D) A 50 year old individual with $50,000 cash to invest who has already made the maximum contributions to an IRA and the 401(k) plan at his place of employment and would like to minimize some of the tax consequences of his currently high tax bracket. Reference: 12.3.4 in the License Exam, Chapter 16: U.S. Government and State Rules a, Chapter 17: Other SEC and SRO Rules and Regul, Chapter 15: Ethics, Recommendations, and Taxa, Chapter 13: Direct Participation Programs, Fundamentals of Financial Management, Concise Edition, Joe B. Hoyle, Thomas F. Schaefer, Timothy S. Doupnik, Carl Warren, James M Reeve, Jonathan E. Duchac. A joint-and-last-survivor annuity is a payout option where: B) accumulation units. These include white papers, government data, original reporting, and interviews with industry experts. Reference: 12.3.1 in the License Exam. D) a variable annuity contract is subject to fluctuating values due to market fluctuations of the underlying separate accounts. Explain what is meant by positive and negative Classifying annuities There are many categories of annuities. Diagnosis is made by punch biopsy. Question #18 of 48Question ID: 606827 The original investment has grown to a value of $60,000. *The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. D) payments continue until age 70-. A) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. A)defined contribution plans. used to escrow late or otherwise delinquent premium payments. A) A variable annuity C)annuity units. d) What is the probability that a user is from the United States, given that he or she logs on every day? The growth portion is subject to a 10% penalty. D) Age 27, saving for first home. used for the investment of funds paid by contract holders. Distributed along a dermatome. B) 10% penalty plus payment of ordinary income tax on all funds withdrawn. e) Are From the United States and Log on every day independently? C) Mutual fund portfolio consisting of blue chip stocks Herpes Zoster has all of the following characteristics except: Group of answer choices. C) insurance guarantee. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. Question #26 of 48Question ID: 606811 They are also not considered suitable for anyone who anticipates needing a lump sum within a short time frame to fund other endeavors. Each of the remaining statements are true. Universal variable life policies The growth portion is taxed as ordinary income. D) II and III. The growth portion is taxed as ordinary income. This factor is used to establish the dollar amount of the first annuity payment. C)Mortality risk. B)Universal variable life policy. C)Corporate bonds. Who assumes the investment risk in a variable annuity contract? Of the answer choices given the best would be to reevaluate the recommendation based on the new information tendered by the client. Question #31 of 48Question ID: 606836 B)value of annuity units. 10.1 This chapter addresses a number of ABS statistics relating to the economically active population which were not discussed elsewhere. a) What percentage of Facebook's users are from the United States? A) The fact that the annuity payment may increase or decrease. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). He makes the following four statements, all of which are true EXCEPT An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are. The most suitable option and one considered effective for married couples is a single joint and last survivor contract. Guaranteed Lifetime Annuity: How They Work, When They Pay You, This is also generally true of retirement plans. D) Variable annuity. Your client has a large sum of money to invest from the proceeds of the sale of his home. Reference: 12.3.3 in the License Exam. B) II and III. It's somewhat similar to a variable life insurance policy in that: You can choose how the product's value is invested. Your customer, still working, informs you that she will be funding a variable annuity you have recommended from 2 sources: a refinancing of her primary home where she will be able to draw out equity that has built up since it was purchased 15 years ago, and cashing out another variable annuity that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. He earned the Chartered Financial Consultant designation for advanced financial planning, the Chartered Life Underwriter designation for advanced insurance specialization, the Accredited Financial Counselor for Financial Counseling and both the Retirement Income Certified Professional, and Certified Retirement Counselor designations for advance retirement planning. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. 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. A)IPO. Your client owns a variable annuity contract with an AIR of 4%. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. Immediate annuities purchase annuity units directly. Which is it? A deferred annuity is an insurance contract that promises to pay the buyer a regular stream of income, or a lump sum, at some date in the future. A variable annuity is both an insurance and a securities product. Variable annuities must be registered with: *As contributions are made with after-tax dollars, only the earnings generated are taxed on withdrawal. D) A 50 year old individual with $50,000 cash to invest who has already made the maximum contributions to an IRA and the 401(k) plan at his place of employment and would like to minimize some of the tax consequences of his currently high tax bracket. C) III and IV. Annuity units are units of ownership when the contract is in the payout stage. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. Therefore, ordinary income taxes will apply to the entire $10,000. The separate account is NOT likely to invest in: B) The policyowner. B) variable annuities. 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. D) Keogh plans. Determine the revenue equation given the profit and expense equations. *Mortality risk- If an annuitant lives longer than expected, the insurance company will have to continue payments longer than expected.