An annuity is primarily designed to:
A. Create an estate
B. Protect against premature death
C. Protect against outliving one’s income
D. Build cash value quickly
Correct Answer: C — Protect against living too long (longevity risk)
The period in which the annuity grows money before payments begin is called:
A. Payout period
B. Accumulation period
C. Liquidity period
D. Cash-value phase
Correct Answer: B
The period in which the insurer makes payments to the annuitant is called:
A. Accumulation period
B. Liquidation period
C. Death settlement period
D. Conversion period
Correct Answer: B — Also called the annuitization or payout period
A flexible premium deferred annuity allows:
A. Only one large deposit
B. Premiums added over time; payouts begin later
C. Only annual premiums
D. Immediate income
Correct Answer: B
A single premium immediate annuity (SPIA) begins paying out:
A. Immediately or within 12 months
B. After 5 years
C. After accumulation period
D. Only at retirement age
Correct Answer: A
A fixed annuity guarantees:
A. Market-based returns
B. Guaranteed minimum interest rate (+ current rate)
C. Payments only during accumulation
D. Unlimited liquidity
Correct Answer: B
In a variable annuity, the accumulation units:
A. Are fixed
B. Vary with investment performance
C. Stay in the general account
D. Never change
Correct Answer: B
Which license(s) are needed to sell variable annuities?
A. Life license only
B. Securities license only
C. Life + FINRA securities registration
D. No license
Correct Answer: C
Which annuity option provides the highest monthly payout?
A. Life with period certain
B. Joint and survivor
C. Life only
D. Refund life
Correct Answer: C — Life-only pays the MOST but stops at death
Which annuity option continues payments for the annuitant’s life AND guarantees payments for a minimum number of years?
A. Life with period certain
B. Joint life
C. Refund life
D. Fixed amount
Correct Answer: A
The joint and survivor annuity is MOST suitable for:
A. A single retiree
B. Someone wanting the highest payout
C. Married couples wanting income for both lives
D. Short-term payouts
Correct Answer: C
Under a refund annuity, if the annuitant dies early:
A. The insurer keeps the balance
B. A beneficiary receives the remaining value
C. Payments stop immediately
D. The policy becomes term insurance
Correct Answer: B
Equity Indexed Annuities (EIAs) earn interest:
A. Based on a stock market index with a guaranteed floor
B. Only by insurer general account
C. Only when the market falls
D. Without any caps or participation rates
Correct Answer: A
The owner of a deferred annuity wants to avoid surrender charges. They should:
A. Annuitize early
B. Withdraw before age 59½
C. Wait until the contract’s surrender period ends
D. Borrow funds
Correct Answer: C
Early withdrawals from an annuity BEFORE age 59½ may trigger:
A. A 2% excise tax
B. A 10% IRS penalty + income tax
C. Only surrender fees
D. No tax consequences
Correct Answer: B
When annuity payments are made, each payment is considered:
A. Entirely taxable
B. Entirely nontaxable
C. Part taxable (interest) and part nontaxable (return of principal)
D. A capital gain
Correct Answer: C
The annuity suitability requirement ensures the agent:
A. Earns the highest commission
B. Recommends products that match the client’s financial situation and objectives
C. Sells the product with the highest interest rate
D. Ignores age and liquidity
Correct Answer: B
In the accumulation phase of a nonqualified annuity, growth is:
A. Tax-free
B. Tax-deferred until withdrawn
C. Taxed annually
D. Deductible
Correct Answer: B
When withdrawals are taken from a nonqualified annuity, they are taxed using:
A. FIFO (first in, first out)
B. LIFO (last in, first out)
C. Basis-first
D. Income-first then basis
Correct Answer: B — LIFO = interest out first, fully taxable
Annuitization means:
A. Canceling the contract
B. Converting the accumulation value into a stream of income
C. Borrowing the cash value
D. Taking a lump-sum refund
Correct Answer: B
