Annuity Concepts and Uses Flashcards
7 cards from real EXAMFX practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Annuity Concepts and Uses flashcards as text
An annuity owner who is NOT the annuitant dies. Under most contracts, what happens?
Answer: The contract must be distributed within five years or taken as income over the beneficiary's life
IRS rules generally require distribution of the annuity's value within five years of the owner's death, or as periodic payments over the beneficiary's life expectancy.
A 1035 exchange allows an annuity owner to:
Answer: Convert a life insurance policy or annuity to another annuity without current tax liability
IRC Section 1035 permits tax-free transfers from a life insurance policy or existing annuity to a new annuity, preserving the tax-deferred status.
Which annuity provision protects the owner against the insurance company's insolvency up to statutory limits?
Answer: State guaranty association coverage
State guaranty associations provide a safety net for policyholders if an insurer becomes insolvent, typically covering annuity values up to a defined limit.
Which scenario best illustrates using an annuity for 'period certain' income needs?
Answer: A 60-year-old who needs income for exactly 5 years until Social Security begins
A period certain annuity is ideal when income is needed for a specific, known duration such as bridging the gap to Social Security.
The accumulation unit in a variable deferred annuity is used to:
Answer: Record the owner's share of the separate account during the accumulation phase
Accumulation units track the owner's proportional interest in the subaccounts during the growth phase before annuitization.
What is the primary tax advantage of using an annuity inside a non-qualified plan?
Answer: Earnings grow tax-deferred until withdrawn
Non-qualified annuities do not offer a deduction on contributions but allow earnings to compound without current taxation until distribution.
An annuity with a 'bailout' provision allows the owner to surrender the contract without penalty when:
Answer: The credited interest rate falls below a specified minimum threshold
A bailout (or escape) provision lets owners exit without surrender charges if the renewal interest rate is reduced below a guaranteed minimum stated in the contract.