Income Beginner: Introduction to Annuities

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1.
There are no tax consequences associated with surrendering an annuity.
Choose wisely. There is only one correct answer.
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.
2.
An annuity should be used only for retirement planning.
Choose wisely. There is only one correct answer.
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.
At any time after commencement of lifetime annuity payments, the annuitant may request a surrender to receive a lump sum cash payment.
Choose wisely. There is only one correct answer.
False. To receive lifetime annuity payments, the annuitant must surrender the annuity cash value to the insurance company.
4.
A fixed annuity offers a guarantee of the safety of principal, but not a guaranteed rate of return.
Choose wisely. There is only one correct answer.
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?
Choose wisely. There is only one correct answer.
A life annuity.
6.
If an annuity is designated as an individual retirement account (IRA), money invested into it may be tax deductible. This means that _______.
Choose wisely. There is only one correct answer.
Contributions are not taxed in the year contributed. Once the contract is annuitized, the entire amount of the annuity payments is then taxed.
7.
The insurance protection offered by many annuities provides a lump sum to the named beneficiary according to which formula?
Choose wisely. There is only one correct answer.
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.