Income Beginner: Introduction to Annuities

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1.
With a flexible premium annuity, an annuitant should never miss a premium payment, as this will likely void his or her contract.
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False. With a flexible premium annuity, generally, a scheduled payment can be missed without fear of losing any of the preceding payments into the plan.
2.
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.
3.
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.
4.
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.
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.
Annuities can provide tax deferral after annuitization.
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True. Only the annuity payments are taxable, not the account value.
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.