CLU Annuities and Retirement Planning

Question 1

What is the primary purpose of an annuity in the context of retirement planning?

Accepted Answer

To convert accumulated assets into a guaranteed stream of income

Answer

To provide a lump-sum death benefit to heirs

Answer

To fund a life insurance policy on a tax-deferred basis

Answer

To maximize short-term investment returns

Question 2

Which phase of an annuity contract is characterized by the owner making premium payments and the contract value growing tax-deferred?

Accepted Answer

Accumulation phase

Answer

Annuitization phase

Answer

Distribution phase

Answer

Surrender phase

Question 3

Under the annuity exclusion ratio, what portion of each annuity payment received is excludable from gross income?

Accepted Answer

A proportionate amount representing the after-tax investment in the contract

Answer

The entire payment until the investment in the contract is recovered

Answer

Only the gain portion of each payment

Answer

None — all annuity payments are fully taxable

Question 4

What is a 'straight life annuity' payout option?

Accepted Answer

Payments for the annuitant's lifetime with no refund at death

Answer

Payments for a guaranteed period regardless of survival

Answer

Payments to the annuitant and then to a named survivor

Answer

Payments that adjust annually for inflation

Question 5

How are withdrawals from a nonqualified deferred annuity taxed prior to annuitization?

Accepted Answer

Last-in, first-out (LIFO) — gain withdrawn first, then cost basis

Answer

First-in, first-out (FIFO) — cost basis withdrawn first, then gain

Answer

Ratably between gain and basis on each withdrawal

Answer

Always as return of capital only

Question 6

Which annuity type credits interest based on the performance of an external market index while protecting against negative index returns?

Accepted Answer

Fixed indexed annuity

Answer

Variable annuity

Answer

Fixed annuity

Answer

Immediate annuity