DC DC Annuities and Retirement Insurance Products 1 — Questions and Answers
Question 1: A DC resident purchases an annuity that begins making income payments immediately after a lump-sum premium is paid. This is called a(n):
- Deferred annuity
- Immediate annuity (Correct answer)
- Variable annuity
- Indexed annuity
Correct answer: Immediate annuity
An immediate annuity converts a lump-sum payment into an income stream that begins within one payment period (usually within a year) of the single premium payment.
Question 2: Under DC insurance regulations, annuity contracts sold by insurers must include a free-look period of at least:
- 10 days (Correct answer)
- 20 days
- 30 days
- 5 days
Correct answer: 10 days
DC requires a minimum 10-day free-look period for annuity contracts, allowing purchasers to return the contract for a full refund.
Question 3: A DC variable annuity's 'separate account' is best described as:
- An account held by the state insurance guaranty fund
- An investment account where the premium is invested in sub-accounts such as mutual fund-like portfolios, with returns tied to market performance (Correct answer)
- A savings account that guarantees principal
- A trust account managed by the DC Insurance Commissioner
Correct answer: An investment account where the premium is invested in sub-accounts such as mutual fund-like portfolios, with returns tied to market performance
The separate account in a variable annuity holds the policyholder's funds in investment sub-accounts, and the contract value fluctuates based on the performance of those investments.
Question 4: In DC, an annuity agent selling variable annuity products is required to hold which type of license in addition to a life insurance license?
- Only a DC life insurance license
- A FINRA securities license (Series 6 or 7) and applicable state variable products license (Correct answer)
- A property and casualty license
- A surplus lines broker license
Correct answer: A FINRA securities license (Series 6 or 7) and applicable state variable products license
Because variable annuities are securities, agents must hold appropriate FINRA securities registrations (Series 6 or 7) in addition to their state insurance license.
Question 5: A DC fixed annuity contract guarantees the contract owner:
- Returns tied to a stock market index
- A minimum guaranteed interest rate and principal protection (Correct answer)
- The highest possible investment return each year
- Unlimited upside based on market gains
Correct answer: A minimum guaranteed interest rate and principal protection
Fixed annuities credit a set guaranteed interest rate and protect the principal from market losses, offering predictable, stable growth.
Question 6: DC insurance suitability rules for annuity sales require agents to:
- Only sell annuities to clients over age 70
- Determine that the annuity is appropriate for the customer's financial situation, needs, and objectives before recommending it (Correct answer)
- Provide a 60-day money-back guarantee on all annuity sales
- File each annuity sale with the DISB within 10 days
Correct answer: Determine that the annuity is appropriate for the customer's financial situation, needs, and objectives before recommending it
DC suitability regulations require annuity producers to gather information about the consumer's financial profile and ensure the recommended product is suitable before completing the sale.
DC DC Annuities and Retirement Insurance Products 1
A DC resident purchases an annuity that begins making income payments immediately after a lump-sum premium is paid.
This is called a(n):