#1
What is an annuity in financial planning?
A fixed sum of money paid to someone each year
ExplanationAnnuity provides regular fixed payments.
#2
How does the cost basis of an annuity affect taxation when withdrawals are made?
Lower cost basis results in lower taxes on withdrawals
ExplanationLower cost basis means reduced taxes on withdrawals.
#3
What does the term 'annuitant' refer to in the context of annuities?
The person who receives annuity payments
ExplanationAnnuitant is the recipient of annuity payments.
#4
What is the primary purpose of an annuity in retirement planning?
To generate a steady income stream
ExplanationAnnuities ensure consistent income during retirement.
#5
What distinguishes a fixed annuity from a variable annuity?
Fixed annuities have a guaranteed interest rate, while variable annuities do not
ExplanationFixed annuities offer guaranteed interest rates.
#6
What is the main advantage of a deferred annuity?
Tax-deferred growth of funds
ExplanationDeferred annuities offer tax-deferred growth.
#7
What is the surrender period in the context of annuities?
A period during which surrender charges may apply if the policyholder withdraws funds
ExplanationSurrender period is when withdrawal incurs charges.
#8
What is the key feature of an immediate annuity?
It starts making regular income payments shortly after the initial premium
ExplanationImmediate annuities offer prompt income payments.
#9
In the context of variable products, what does 'variable' refer to?
Investment options can vary over time
ExplanationVariable products offer flexible investment options.
#10
How does a surrender charge impact a variable annuity?
It reduces the annuity payments
ExplanationSurrender charges decrease annuity payments.
#11
How does the death benefit work in a variable life insurance policy?
It fluctuates based on the performance of the underlying investments
ExplanationDeath benefit varies with investment performance.
#12
What role does an annuitization option play in annuities?
It converts the accumulated value into a stream of income payments
ExplanationAnnuitization option turns value into income payments.
#13
What is the role of mortality and expense risk charges in variable annuities?
They cover the cost of insurance benefits and investment management
ExplanationMortality and expense risk charges cover insurance and management costs.