Annuity Concepts and Uses Flashcards

Which annuity payout option guarantees income for as long as the annuitant lives, with no payments to beneficiaries after death?

Answer: Life only

The life-only option provides the highest monthly payment but stops entirely at the annuitant's death with no residual benefit.

An indexed annuity credits interest based on the performance of:

Answer: An external market index such as the S&P 500

Indexed annuities link credited interest to an external index, offering upside potential while typically guaranteeing a minimum floor.

What is the primary purpose of a surrender charge on a deferred annuity?

Answer: To recover the insurer's acquisition costs if the contract is surrendered early

Surrender charges recoup front-end expenses the insurer incurs and typically decline over a set period.

During the accumulation phase of a deferred annuity, the owner's funds grow on a:

Answer: Tax-deferred basis

Annuity earnings accumulate tax-deferred, meaning taxes are owed only when funds are distributed.

A variable annuity's subaccounts are most similar to which investment vehicle?

Answer: Mutual funds

Subaccounts function like mutual funds, allowing the owner to direct premiums among various investment options.

Which of the following best describes an immediate annuity?

Answer: A contract funded with a single premium that begins income payments within one year

Immediate annuities are purchased with a lump sum and typically begin income within 30 days to one year.

A 10-year period certain annuity payout ensures that:

Answer: If the annuitant dies before 10 years, a beneficiary receives payments for the remainder of that period

Period certain guarantees payments for a minimum number of years; if the annuitant dies before the period ends, a beneficiary receives the remaining payments.