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.
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.
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.
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.
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.
There are no tax consequences associated with surrendering an annuity.
Choose wisely. There is only one correct answer.
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.
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.