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A) II and III. D) II and III. D) Variable annuities. C) A 25year old public school teacher who would like to save enough for the purchase of her first home within the next 3 to 5 years. II) It has an internal capital market wherein each division competes for funds. D)I and II. A fixed annuity is an insurance contract that pays a guaranteed rate of interest on the owner's contributions and later provides a guaranteed income. How Are Nonqualified Variable Annuities Taxed? D) I and III. *A variable annuity is a security and must be registered with the SEC, not FINRA. Both products typically have a wide range of options across equities, bonds and money market instruments. A) a minimum rate of return is guaranteed. Contributions to a nonqualified variable annuity are not tax deductible. The most suitable option and one considered effective for married couples is a single joint and last survivor contract. Following the transition to T+1 in the U.S. markets, Commission staff will continue to work with industry leaders, public interest advocates, investors and other regulators to assess the future feasibility of a T+0 settlement standard cycle, and seek to identify ways to overcome the challenges associated with such a move, as articulated in the . MetLife offers a comprehensive benefits program, including healthcare benefits, life insurance, retirement benefits, parental leave, legal plan services and paid time off. A separate account will invest in a number of different securities. Question #46 of 48Question ID: 606796 The money paid in will be returned tax free, but the earnings portion will be taxed as ordinary income. Variable Annuities. On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). C) the yield is always higher than bond yields. C) III and IV. Since the client is older than 59 at the time of distribution, the additional 10% penalty tax is not incurred. Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Eric W. Noreen, Peter C. Brewer, Ray H Garrison. a. A) mortality guarantee. Your client owns a variable annuity contract with an AIR of 4%. Qualified Longevity Annuity Contract (QLAC): Definition, Taxes, and Example, Present Value of an Annuity: Meaning, Formula, and Example, Future Value of an Annuity: What Is It, Formula, and Calculation, Calculating Present and Future Value of Annuities, Present Value Interest Factor of Annuity (PVIFA) Formula, Tables. C)the invested money will be professionally managed according to the issuers' investment objectives. Before buying a variable annuity, investors should carefully read the prospectus to try to understand the expenses, risks, and formulas for calculating investment gains or losses. C)Corporate bonds. The following information about the payroll for the week ended December 303030 was obtained from the records of Vienna Co.: Salaries:Deductions:Salessalaries$670,000Incometaxwithheld$198,744Warehousesalaries110,000Socialsecuritytaxwithheld51,714Officesalaries234,000Medicaretaxwithheld15,210$1,014,000U.S. continues payments as long as one annuitant is alive. *The most important consideration in purchasing a variable annuity is to be aware that benefit payments will fluctuate with the investment performance of the separate account. the SEC. B) The entire $10,000 is taxable as ordinary income. A) Ordinary income tax on earnings exceeding basis. B) accumulation units. This role is also eligible for annual short-term incentive compensation. Based on the clients profile which of the following would be the best recommendation? C)It will be higher. C) III and IV. Which of the following recommendations would best meet the customer profile? Reference: 12.1.2.1.2 in the License Exam. These contracts cover both lives and will continue to make payments until the last spouse dies. C)Variable annuity contract with a discussion regarding interest rate risk The remainder of the premium is invested in the separate account. Do whatever you want with a Learn About Annuities and Their Myths - F&G: fill, sign, print and send online instantly. If the annuitant should die during that time, any death benefit would be paid to a beneficiary designated by the annuitant at the time the annuity was purchased. A)exempt from taxes approve changes in the plan portfolio. An investor who has purchased a nonqualified variable annuity has the right to: Variable annuities must be registered with: All of the following statements concerning a variable annuity are correct EXCEPT: D) variable annuities will protect an investor against capital loss. *Funding a VA contract by cashing out either life insurance policies or existing VA contracts, especially those held for a short period of time is not suitable. Which of the following statements regarding variable annuities are TRUE? A) I and II. By clicking Accept All Cookies, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. U.S. Securities and Exchange Commission. Suppose that 20%20 \%20% of their users are United States users who log on daily. In March, the actual net return to the separate account was 8%. C)II and III. The number of accumulation units can rise during the accumulation period. A) Any tax due is deferred. Question #42 of 48Question ID: 606830 Based on the information given in the question, the VA recommendation would not be suitable. B) taxed as ordinary income. Annuities due are a type of annuity where payments are made at the beginning of each payment period. Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. In a variable life annuity with 10-year period certain, a contract holder receives: The number of annuity units is fixed at the time of annuitization. A) A variable annuity Contributions to an IRA may be tax deductible, depending on the individual's earnings and participation in a company-sponsored qualified retirement plan. Therefore, ordinary income taxes will apply to the entire $10,000. How is the distribution taxed? Table1. His objective is monthly income that he can receive after he retires to supplement his small pension and social security benefits. must precede every sales presentation. If the account is annuitized, the investor has chosen a payout option. The growth portion is taxed as ordinary income. Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps. Variable annuities should be considered long-term investments due to the limitations on withdrawals. John is the annuitant in a variable plan, and Sue is the beneficiary. Reference: 12.3.1 in the License Exam. Reference: 12.1.2.1.1 in the License Exam. Reference: 12.3.3 in the License Exam. Question #35 of 48Question ID: 606810 Your customer in his early 30s has received a modest inheritance from a relative. A) number of annuity units. *Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. Question #32 of 48Question ID: 606815 C) I and IV. Once a customer annuitizes a variable annuity, which of the following statements are TRUE? The value of the annuity units varies. continues payments only as long as all annuitants are still alive. B) II and IV. A)equity funds. Outgoing personality with the ability to develop relationships (i.e., "People Person") and a sincere desire to help others Fearless, positive attitude, and willingness to be accountable for results Organized, detail-oriented, and excellent time-management skills A desire for continuous learning D) a minimum of 10 years of variable payments, followed by additional variable payments for life Accumulation Period of Fixed Annuities During this period, premiums are credited with interest which accumulates on a yearly basis. D) cost of living. For an insurance company, mortality risk turns out unfavorably if: Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. D)Investment risk. This would not align with the couple's criteria for coverage as long as they both live. A) complete all paper work to purchase the annuity contract and obtain the clients signature immediately. C) insurance companies keep variable annuity funds in separate accounts from other insurance products. B) Corporate debt securities B) II and III C)II and IV. IV. Distributions to the annuitant will fluctuate during the payout period. With variable annuities policyholders can choose from a number of investment opportunities. D)It cannot be determined until the April return is calculated. Reference: 12.2.1 in the License Exam. *This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. Determine whether the following events are independent or dependent. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. C)II and IV. A) partially a tax-free return of capital and partially taxable. A) A 75 year old women, who is a former executive retired for over ten years who wants to preserve as much capital as she can to leave to her two grandchildren. Post navigation A variable annuity's separate account is: The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both insurance and securities licenses. The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? D) Variable annuities. The second phase is triggered when the annuity owner asks the insurer to start the flow of income, often referred to as the payout phase. View full document. Spartan Technology Services and Solutions Private Limited is a subsidiary of IBM (International Business Machines) Corporation. Reference: 12.3.3 in the License Exam. Rolling two 222s followed by one 666 on three tosses of a fair die, Use the table 1 and table 2 to complete the table 3 While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. Single payment deferred annuity. The nature of the securities invested in-bonds and growth stocks-makes it necessary that sales representatives and their principals be licensed in securities as well as insurance. If your 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized, what are the consequences of this action? C)The entire $10,000 is taxable as ordinary income. D)I and IV. Distributed along a dermatome. The growth portion is subject to a 10% penalty. savingsbonds30,420Groupinsurance45,630$341,718\begin{array}{lrlr} *When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. B) the state insurance department. They offer broad diversification in the securities market and potential growth, all while using the power of tax deferral. While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount. The remainder of the premium is invested in the separate account. B) with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually 2019 Ted Fund Donors At the end of the year your account has a value of 10750. The trial of the assassins commenced on the following day; and the evidence being so clear, they were both found guilty, and condemned, to be broken alive on the wheel. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. She will receive the annuity's entire value in a lump-sum payment. D)Variable annuity. "Variable Annuities: What You Should Know," Page 10. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. . The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. When the first party dies, the annuity payment is made to the survivor. A) The entire amount is taxed as ordinary income, because it is not life insurance. B) suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract Annuities are complicated products, so that may be easier said than done. The LATF-adopted ILVA Actuarial Guideline has an effective date of July 1, 2024 for contracts, riders or endorsements issued on or after that date. B)4200. Which Earns More: Variable or Fixed Annuities? A universal variable life policy should be purchased primarily for its insurance features, not its investment features. An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. C)II and IV. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. C) a variable annuity contract does not guarantee any type of return B) variable annuities. IV. C) Unit refund life option The paper publication will not be rereleased. B)Value of each annuity unit each month. An investor owning which of the following variable annuity contracts would hold accumulation units? Your 65-year-old client owns a nonqualified variable annuity. B) A 30 year old construction worker recently unemployed who wants to invest his severance pay amounting to 9 months salary. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. Variable annuity salespeople must be registered with FINRA and the state insurance department. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. This recommendation is: B) During the accumulation period. When money is deposited into the annuity, it is purchasing accumulation units. The number of annuity units rises once annuitization begins. Essential Characteristics: Question #19 of 48Question ID: 606826 If the owner of a variable annuity dies during the accumulation period, any death benefit will: The separate account is NOT likely to invest in: A)II and IV. Distributions from nonqualified variable annuities are: The features of variable deferred annuities are many. A)unsuitable because the return on something as conservative as a variable annuity tends to be low. The annuity unit's value represents a guaranteed return. We also reference original research from other reputable publishers where appropriate. She will receive the annuity's entire value in a lump-sum payment. Your customer is interested in a variable annuity but is unclear on some of the details regarding different specifications and riders that can be attached to the contract. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. B)reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. Lifetime vs. fixed period annuities Future annuity payments will vary according to the separate account's performance. must precede every sales presentation. A) II and IV. Variable annuities operate in similar ways to . Though its stated return might not be as high as the other choices potential returns, only a fixed annuity fits the objective and risk averse traits of this client. D) None, because it is the proceeds from a life insurance company. However, they are protected by state guaranty associations in the event that the insurance company providing the product goes out of business. D)suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract, Based on the information given in the question, the VA recommendation would not be suitable. D)an accounting measure used to determine payments to the owner of the variable annuity. D) Age 27, saving for first home. Are There Penalties for Withdrawing Money From Annuities? If this client is in the payout phase, how would his April payment compare to his March payment? A variable annuity is both an insurance and a securities product. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. the agent must be licensed in both insurance and securities. A) mortality guarantee. For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. U.S. Securities and Exchange Commission. The wage for applicants for this position is $45,979.00 per year. A)the yield is always higher than mortgage yields. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. He wants to ensure that the client, in addition to meeting suitability requirements, is aware of certain variable annuity contract characteristics. Which of the following are defined as securities? A 58-year-old individual near retirement who is in good health and anticipates a lengthy retirement Often used for retirement planning purposes, it is meant to provide a regular (monthly, quarterly, annual) income stream, starting at some point in the future. A) Ordinary income tax on earnings exceeding basis. A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. have investment risk that is assumed by the investor Sample problems from Chapter 9. . A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. The amount of the purchase payments that go into the account may be less than you paid because fees were taken out of the purchase payments. If the customer takes a withdrawal of $10,000, what are the tax consequences? no. The correct answer was: partially a tax-free return of capital and partially taxable. Variable annuities were introduced in the 1950s as an alternative to fixed annuities, which offer a guaranteedbut often lowpayout during the annuitization phase. Annuities are similar to other forms of investing in that the owner invests money with the hope that it will gain in value, but annuities also come with higher fees than most mutual funds. A) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. The anti-money laundering rules for insurance companies highlight that each insurance company - like other financial institutions subject to anti-money laundering program requirements - must develop a risk-based anti-money laundering program that identifies, assesses, and mitigates any risks of money laundering, terrorist financing, and other C) taxed as ordinary income only to the extent of earnings. D) be paid to the issuing company to complete the plan. Question #24 of 48Question ID: 606806 The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. D) II and IV. B)suitable regardless of funding sources The fixed annuities, indexed annuities, and variable annuities are some of the major types of annuities, of which one may find immediate annuities and deferred annuities. have investment risk that is assumed by the investor A)variable annuities will protect an investor against capital loss. A) Dow Jones Industrial Average. A) I and II The growth portion is subject to a 10% penalty. Immediate life annuity with 10-year period certain. Annuity units are units of ownership when the contract is in the payout stage. B)value of annuity units. You have 4 clients each expressing interest in a variable annuity contract. Annuity death benefits are generally paid in a lump sum. B) Age 78, retired for 20 years, lives comfortably and wants to leave all liquid assets to children The following are the characteristics or the hierarchy of a trend except A. Gigatrends C. Megatrends B. Macrotrends D. Nanotrends _____11. C)municipal bonds. can be sold by someone with only an insurance license C)not suitable because a lifetime income rider is only for someone who is already retired Reference: 12.3.2.1 in the License Exam. B)Variable annuities. B) payment guarantee. Which is it? In this case, the investor is taking a lump-sum distribution before reaching age 59- and must pay an additional 10% penalty on the taxable amount. A)Purchasing power risk. C) 100% tax free. D)Joint and last survivor annuity. B) The investor's marital status. C)prime rate. The customer, in the accumulation stage of the annuity, is holding accumulation units. D) I and III. B)Capital gains taxation on the earnings withdrawn in excess of the owner's basis. Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. A)a lifetime withdrawal benefit (LWB) or lifetime income benefit is generally in the form of a rider attached to the contract which will come at a cost to the annuitant An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: *Variable annuity contracts must be sold by prospectus due to the characterization of the separate accounts as securities, which must be registered under the Securities Act of 1933 and the Investment Company Act of 1940. A) be paid to a designated beneficiary. Each of the remaining statements are true. Annual depreciation on the machine is$12,000, and the tax rate of the company is 25%. C) II and IV *Universal variable life policies are insurance company products that should be purchased primarily for the insurance features they offer rather than as an investment. What is the annual cash flow generated from the new machine? An Immediate Annuity is designed to provide each of the following features, EXCEPT: The creation of an estate. D) reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment.