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.
If an annuitant does not wish to annuitize the funds, he or she can simply surrender the full value of the annuity.
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True. If the annuitant does not wish to annuitize, he or she can simply surrender the full value of the annuity.
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.
If an annuity is designated as an individual retirement account (IRA), money invested into it may be tax deductible. This means that _______.
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Contributions are not taxed in the year contributed. Once the contract is annuitized, the entire amount of the annuity payments is then taxed.
5.
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.
6.
An annuitant is _______.
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A person on whose life an annuity is based.
7.
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.