Annuity Products & Structures Flashcards
7 cards from real RAA 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 Products & Structures flashcards as text
Which annuity structure provides a guaranteed minimum interest rate while also crediting interest based on the performance of an external market index?
Answer: Indexed annuity
An indexed (or fixed-indexed) annuity credits interest linked to an external index such as the S&P 500 while guaranteeing that the contract value will not fall below zero due to market losses.
A participation rate of 70% on an indexed annuity means the contract owner receives:
Answer: 70% of any positive index gain is credited to the account
The participation rate determines what percentage of the index's positive return is credited to the annuity; a 70% rate means only 70 cents of every dollar of index gain is credited.
Which of the following best describes a 'spread' or 'margin' in the context of indexed annuities?
Answer: An amount deducted from the index gain before crediting interest
A spread (or margin) is subtracted from the index gain; if the index rises 8% and the spread is 2%, only 6% is credited to the annuity.
A deferred annuity's 'accumulation phase' ends when the owner:
Answer: Annuitizes or surrenders the contract
The accumulation phase is the period during which premiums grow tax-deferred and ends when the owner annuitizes the contract or surrenders it for its cash value.
What distinguishes a 'graded benefit' deferred annuity from a standard deferred annuity?
Answer: The death benefit increases incrementally over the first several contract years
A graded benefit annuity pays a limited death benefit (often return of premium) if death occurs early in the contract, with the full account value payable only after the grading period ends.
Which annuity payout option guarantees income for the annuitant's lifetime but stops payments upon the annuitant's death with no further payments to beneficiaries?
Answer: Straight life (life only)
A straight life (life-only) annuity provides the highest periodic payment but ceases entirely upon the annuitant's death, leaving no residual value for beneficiaries.
A 'bonus annuity' typically offers an initial premium bonus, but advisors should warn clients about which offsetting feature?
Answer: Longer surrender charge periods and/or lower cap rates
Bonus annuities often recoup the upfront premium credit through extended surrender charge schedules, higher spreads, or lower participation/cap rates over the life of the contract.