Income Beginner: Introduction to Annuities

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1.
An annuity should never be used for a childs future education expenses, because the child will be less than age 59 and thus subject to the 10 percent penalty tax.
Choose wisely. There is only one correct answer.
False. If the annuitant or contract owner is a parent or grandparent who will be older than age 59 at the time the education funds are needed, then an annuity can be a viable option.
2.
Fixed annuity premiums must be placed into the insurance companys _______.
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General account. Fixed annuity premiums are placed into the insurance companys general account. This money is then reinvested very conservatively.
3.
The insurance protection offered by many annuities provides a lump sum to the named beneficiary according to which formula?
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The greater of total payments or the current account value. In the event of the annuitants death prior to annuitization, the named beneficiary will receive the greater of the total payments made or the current value of the account at the time of death.
4.
Once the money is annuitized from an annuity that had received nondeductible premiums, _______.
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A portion of each payment is taxed according to an IRS formula.
5.
The key feature of any annuity is that it can provide income for life.
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True. The annuitant can have his or her payments from a fixed annuity paid out over his or her lifetime at a fixed dollar amount. In exchange for this privilege, he or she must first surrender the value of the annuity to the insurance company.
6.
If an annuitant will receive payments for life, but at least for 10 years, which payout option has he or she selected?
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A life annuity with period certain. The annuitant receives payments for life, with a certain period of time guaranteed. If the annuitant dies before expiration of the period certain, payments continue to the named beneficiary for the remainder of the period.
7.
If an annuitant does not wish to annuitize the funds, he or she can simply surrender the full value of the annuity.
Choose wisely. There is only one correct answer.
True. If the annuitant does not wish to annuitize, he or she can simply surrender the full value of the annuity.