Income Beginner: Introduction to Annuities

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1.
If an annuity is designated as an individual retirement account (IRA), money invested into it may be tax deductible. This means that _______.
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Contributions are not taxed in the year contributed. Once the contract is annuitized, the entire amount of the annuity payments is then taxed.
2.
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.
3.
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.
4.
Most annuities have a surrender charge schedule built into them that penalizes early withdrawals.
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True. Most annuities have a surrender charge schedule built into them that penalizesand therefore discouragesearly withdrawals (except permitted limited withdrawals). A typical surrender charge might start at 10 percent and decline to 0 percent over a 10- or 15-year period.
5.
Under what type of payout arrangement can an annuitant arrange for a certain dollar amount to be periodically liquidated from the annuity and sent to him or her?
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Systematic withdrawals. With this option, a certain amount is sent to the annuitant every month, quarter, or year.
6.
With a flexible premium annuity, an annuitant should never miss a premium payment, as this will likely void his or her contract.
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False. With a flexible premium annuity, generally, a scheduled payment can be missed without fear of losing any of the preceding payments into the plan.
7.
Most insurance companies allow loans from an annuity.
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False. Because loans are classified as taxable withdrawals, most insurance companies do not permit loans from annuities.