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Portfolios 401: Deferred, Fixed, and Variable Annuities

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1.
An annuity's exclusion ratio keeps your contributions from being taxed twice.
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True. The exclusion ratio determines what part of your annual payments is made up of earnings (which are taxed) and what part is your basis (the money you contributed to your annuity, which was already taxed).
2.
With annuities, mortality risk benefits _______.
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Both. Annuitants trade the risk of dying before collecting full value for higher payments and possibly collecting more than full value if they live long.
3.
The earnings on fixed annuities are free from taxes until you annuitize.
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True. Annuity income is tax-deferred.
4.
Which of the following is not a characteristic investment account available with variable annuities?
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General account. Stock, bond, and money market accounts are the "characteristic" separate accounts available with variable annuities.
5.
Since you may die before you collect the full value of your annuity through the life annuity option, it is better to select an option with a period certain provision.
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False. Though this could be true, it really depends upon one's objectives. Each option has benefits and tradeoffs.
6.
The period during which annuity premiums are paid is called the _______.
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Accumulation period. In the accumulation period, the annuity owner (annuity holder) pays premiums to the company.
7.
Equity-indexed annuities typically promise what kind of return?
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A guaranteed rate of return. A guaranteed rate of return is promised, and there is usually some participation in stock market returns as well.
8.
An annuity that delays payments until some point in the future is called a(n) _______.
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Deferred annuity. A deferred annuity delays payments until some point in the future.