Income Beginner: Introduction to Annuities

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1.
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.
2.
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.
3.
An annuitant is _______.
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A person on whose life an annuity is based.
4.
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.
5.
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.
6.
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.
7.
There are no tax consequences associated with surrendering an annuity.
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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.