#1
Which of the following best defines an annuity?
A series of periodic payments
ExplanationAn annuity represents a series of regular payments over time.
#2
How does a life annuity differ from a term certain annuity?
Life annuity provides lifelong payments, while term certain annuity provides payments for a specified term
ExplanationLife annuities offer payments for the annuitant's lifetime, whereas term certain annuities have payments for a set period.
#3
How does the surrender charge in an annuity contract affect early withdrawals?
It discourages early withdrawals by imposing penalties
ExplanationSurrender charges deter early withdrawals through penalty fees.
#4
In a fixed annuity, how are interest rates typically determined?
Fixed at the time of purchase
ExplanationInterest rates in fixed annuities remain constant from the time of purchase.
#5
What is the primary advantage of a variable annuity over a fixed annuity?
Flexibility in investment choices and potential for higher returns
ExplanationVariable annuities offer more investment options and the potential for increased returns compared to fixed annuities.
#6
What is the key characteristic of a fixed annuity?
Guaranteed periodic payments
ExplanationFixed annuities offer assured regular payments.
#7
In a deferred annuity, when do the payments typically begin?
After a specified waiting period
ExplanationDeferred annuities start payments after a predetermined period.
#8
What distinguishes a variable annuity from other types of annuities?
Investment choices and market performance impact returns
ExplanationVariable annuities' returns are influenced by investment selections and market performance.
#9
In the context of annuities, what does the term 'annuitization' refer to?
The conversion of the annuity's value into a stream of periodic payments
ExplanationAnnuitization transforms the annuity's value into a series of regular payments.
#10
Which of the following is a potential disadvantage of a fixed annuity?
Risk of inflation eroding purchasing power
ExplanationInflation can reduce the purchasing power of fixed annuity payments.
#11
What role does the annuitization phase play in the lifecycle of an annuity?
It converts the accumulated value into a stream of periodic payments
ExplanationAnnuitization phase transforms the annuity's value into regular payments.
#12
What is the main advantage of a joint and survivor annuity?
Lifetime income for multiple beneficiaries
ExplanationJoint and survivor annuities ensure income for multiple recipients throughout their lives.
#13
Which factor is typically considered in determining annuity payments?
Annuity holder's age
ExplanationAn annuitant's age often influences the amount of annuity payments.
#14
Which type of annuity allows the annuitant to participate in potential market gains?
Variable annuity
ExplanationVariable annuities offer the opportunity to benefit from market gains.
#15
What is the surrender period in an annuity contract?
The period during which the annuity holder can surrender the contract without penalties
ExplanationSurrender period allows annuity holders to terminate the contract without penalties during a specified time.
#16
In a variable annuity, what is the purpose of the death benefit rider?
Guarantees a minimum death benefit to the beneficiary
ExplanationDeath benefit rider ensures a minimum payout to the beneficiary upon the annuitant's death.
#17
What distinguishes a qualified annuity from a non-qualified annuity?
Qualified annuities are purchased with pre-tax dollars, while non-qualified annuities are purchased with after-tax dollars
ExplanationQualified annuities are funded with pre-tax funds, whereas non-qualified annuities use after-tax money.