Income Beginner: Introduction to Annuities

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1.
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.
2.
An annuitant is _______.
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A person on whose life an annuity is based.
3.
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.
4.
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.
5.
If an annuitant receives a guaranteed monthly check for life, with payments ceasing at death, which payout option has he or she selected?
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A life annuity.
6.
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.
7.
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.