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.
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.
3.
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.
4.
Annuities can provide tax deferral after annuitization.
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True. Only the annuity payments are taxable, not the account value.
5.
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.
6.
Most insurance companies allow loans from an annuity.
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False. Because loans are classified as taxable withdrawals, most insurance companies do not permit loans from annuities.
7.
An annuitant is _______.
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A person on whose life an annuity is based.