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.
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 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.
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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.
4.
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.
5.
Annuities can provide tax deferral after annuitization.
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True. Only the annuity payments are taxable, not the account value.
6.
At any time after commencement of lifetime annuity payments, the annuitant may request a surrender to receive a lump sum cash payment.
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False. To receive lifetime annuity payments, the annuitant must surrender the annuity cash value to the insurance company.
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.