Income Beginner: Introduction to Annuities

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1.
At any time after commencement of lifetime annuity payments, the annuitant may request a surrender to receive a lump sum cash payment.
Choose wisely. There is only one correct answer.
False. To receive lifetime annuity payments, the annuitant must surrender the annuity cash value to the insurance company.
2.
A fixed annuity offers a guarantee of the safety of principal, but not a guaranteed rate of return.
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False. A fixed annuity offers the investor a guarantee of the safety of his or her principal as well as a guaranteed rate of return on all funds placed in the insurance companys general account.
3.
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.
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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.
4.
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.
5.
Annuities can provide tax deferral after annuitization.
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True. Only the annuity payments are taxable, not the account value.
6.
There are no tax consequences associated with surrendering an annuity.
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False. Federal and state income taxes on all earnings will be due and payable in full in the year of the surrender, in addition to a 10 percent penalty tax if surrendered before age 59.
7.
Which of the following is acceptable for putting money into a flexible premium annuity?
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All of the above. With a flexible premium annuity, an investor can make a single premium payment, periodic payments, or sporadic payments according to no particular schedule.