Income Beginner: Introduction to Annuities

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
The insurance protection offered by many annuities provides a lump sum to the named beneficiary according to which formula?
Choose wisely. There is only one correct answer.
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.
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?
Choose wisely. There is only one correct answer.
Systematic withdrawals. With this option, a certain amount is sent to the annuitant every month, quarter, or year.
3.
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.
4.
An annuity should never be used for a childs future education expenses, because the child will be less than age 59 and thus subject to the 10 percent penalty tax.
Choose wisely. There is only one correct answer.
False. If the annuitant or contract owner is a parent or grandparent who will be older than age 59 at the time the education funds are needed, then an annuity can be a viable option.
5.
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.
6.
General account funds cannot be commingled with any other funds.
Choose wisely. There is only one correct answer.
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.
If an annuity is designated as an individual retirement account (IRA), money invested into it may be tax deductible. This means that _______.
Choose wisely. There is only one correct answer.
Contributions are not taxed in the year contributed. Once the contract is annuitized, the entire amount of the annuity payments is then taxed.