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.
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.
3.
An annuitant is _______.
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A person on whose life an annuity is based.
4.
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.
5.
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.
6.
General account funds cannot be commingled with any other funds.
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True. By law, funds in the insurance companys general account cannot be commingled with any other funds, even if these other funds are owned and controlled by the insurance company.
7.
An annuity should be used only for retirement planning.
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False. An annuity can be an ideal investment vehicle for such important goals as a grandchilds education expenses and paying for hospital and medical costs associated with an accident or lengthy illness during ones older years.