Income Beginner: Introduction to Annuities

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1.
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.
2.
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.
3.
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.
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.
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.
6.
Annuities can provide tax deferral after annuitization.
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True. Only the annuity payments are taxable, not the account value.
7.
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.