EXAMFX - Exam FX Insurance Annuity Concepts and Uses Questions and Answers

Question 1

An individual purchases a non-qualified deferred annuity. During the accumulation period, what is the tax treatment of the growth within the contract?

Accepted Answer

The growth is tax-deferred until withdrawal.

Answer

The growth is taxed annually as ordinary income.

Answer

The growth is taxed annually at the capital gains rate.

Answer

The growth is completely tax-free.

Question 2

A 60-year-old client is risk-averse and wants to purchase an annuity that provides a guaranteed interest rate and protects their principal from market fluctuations. Which type of annuity would be most suitable for this client?

Accepted Answer

Fixed Annuity

Answer

Variable Annuity

Answer

Equity-Indexed Annuity

Answer

Immediate Annuity

Question 3

A married couple is setting up an annuity and wants to ensure that if one spouse dies, the surviving spouse will continue to receive income payments for the rest of their life. Which payout option best achieves this goal?

Accepted Answer

Joint and Survivor

Answer

Life with Period Certain

Answer

Lump-Sum Payment

Answer

Life Only

Question 4

Which of the following correctly identifies the parties to an annuity contract and their roles?

Accepted Answer

The owner purchases and controls the contract, the annuitant's life expectancy is used to calculate payments, and the beneficiary receives any death benefit.

Answer

The annuitant funds the contract, the owner's life expectancy determines payments, and the beneficiary receives payments while the annuitant is alive.

Answer

The owner is the insurer, the annuitant receives the death benefit, and the beneficiary determines the payment amounts.

Answer

The beneficiary funds the contract, the owner's life determines payments, and the annuitant receives the death benefit.

Question 5

An equity-indexed annuity's return is linked to a stock market index, but it guarantees a minimum interest rate. If the index performs well, the interest credited to the annuity might be limited by a feature that specifies the maximum percentage of the gain that will be applied. What is this feature called?

Accepted Answer

Participation Rate

Answer

Exclusion Ratio

Answer

Annuitization Rate

Answer

Surrender Charge

Question 6

When an individual begins receiving payments from a non-qualified immediate annuity, a portion of each payment is considered a tax-free return of principal, while the rest is taxable earnings. What is the method used to determine the non-taxable portion of each payment called?

Accepted Answer

The Exclusion Ratio

Answer

The Cost Basis Method

Answer

The Last-In, First-Out (LIFO) Rule

Answer

The Capital Gains Calculation