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ANNUITIES CE EXAM REVIEW 2025 - 2026 |ORIGINAL
QUESTIONS WITH ANSWERS AND RATIONALES|A+
GRADE
Which of the following is a purpose of the annuity? A. The replacement of earnings upon the disability of an individual B. The distribution of a lifetime income C. The discounting of a principal sum back to its present value D. The creation of a fund at the earth of an individual - ANS:->>>B Rationale: the purpose of an annuity is the distribution of a lifetime income Annuity purchasers transfer to an insurance company their risk of A. Outliving their financial resources B. Becoming uninsurable C. Dying prematurely D. Having to pay unexpectedly high estate taxes - ANS:->>>A Rationale: when people purchase annuities, they transfer the risk of outliving their financial resources to an insurance company Under which of the following payout options are payments made regardless of how long the annuitant lives?
A. Fixed period payments B. Interest only payments C. Life annuity payments D. Fixed amount payments - ANS:->>>C Rationale: life annuity payments are made regardless of how long the annuitant lives.An annuity is sometimes called the flip side of A. Qualified retirement plans B. Social security C. Life insurance D. Compounding - ANS:->>>C Rationale: the flip side of an annuity is life insurance Who receives lifetime payments from an annuity? A. A beneficiary B. A trustee C. An executor D. An annuitant - ANS:->>>D
C. The immediate annuity D. The deferred annuity - ANS:->>>B Rationale: the fixed annuity guarantees a minimum rate of return The rate of return on a variable annuity is A. Tied to the performance of securities in the insurer's separate account B. Variable within a specified number of percentage points C. Flexible but guaranteed to be no less than the minimum rate specified in the contract D. Guaranteed to reflect activity on the New York Stock Exchange - ANS:->>>A Rationale: a variable annuity's rate of return is tied to the performance of securities in the insurer's separate account An individual who wants the potential for hedging against inflation with money invested in an annuity should choose A. A variable annuity B. A split-dollar annuity C. A fixed annuity
D. An immediate annuity - ANS:->>>A Rationale: a variable annuity allows an individual to hedge against inflation A fixed annuity contract calls for a 5% guaranteed interest rate. The annuitant will A. Never receive less than 5% interest B. Always be credited with additional interest equal to the rate at which the company earns excess interest C. Never receive more than 5% interest D. Always receive some rate above 5% which the company chooses to pay
- ANS:->>>A Rationale: if a fixed annuity contract calls for a 5% guaranteed interest rate, then the annuitant will never receive less than 5% interest. The licensing requirements for agents who sell variable annuities include A. All of these B. In some states, a separate state variable contracts license C. Life insurance license from their state insurance department
Rationale: a variable annuity involves investment risk assumed by contract owners A variable annuity offers a possible hedge against which of the following? A. Recession B. Falling stock market C. Depression D. Inflation - ANS:->>>D Rationale: a variable annuity offers a possible hedge against inflation The account set up by the insurance company to handle variable contracts is called
A. The registered account B. The segregated asset account C. The separate account D. The general account - ANS:->>>C Rationale: a separate account is set up to handle variable contracts One of the real tax advantages of annuities is A. The annuity payments are not subject to income tax B. The earnings in the contract are not taxed as income each year C. They are classified as tax-exempt investments D. The earnings are taxed as capital gains rather than income - ANS:->>>B Rationale: annuities provide tax advantage in that earnings in the contract are not taxed as income each year If an annuity owner, age 55, sets up a properly designed systematic withdrawal plan, A. The owner generally will not be subject to the penalty tax on premature
TRUE?
A. The value in the annuity account reverts to the insurance company B. The value of the annuity is not included in the annuity owner's estate C. The beneficiary must select an annuity payout options within 60 days D. The proceeds from the annuity do not go through probate - ANS:->>>D Rationale: when an annuity owner dies, the proceeds from the owner's annuity do not go through probate One of the advantages of an annuity systematic withdrawal plan is A. The payments are received tax-free B. The minimum surrender charge C. The flexibility the plan gives to the contract owner D. The forced savings aspect of the plan - ANS:->>>C Rationale: an advantage of an annuity systematic withdrawal plan is the flexibility it provides the contract owner For a joint and survivor annuity for two unmarried people purchased entirely with the funds of the survivor, how much is included in the gross estate of the
first to die? A. 50% of the value of the survivor annuity B. It depends on the ages of the 2 annuitants C. 0% D. 100% of the value of the survivor annuity - ANS:->>>C Rationale: if the survivor contributed 100% of the funds to the joint and survivor annuity, then 0% of the funds will be included in the gross estate of the first to die The 10% penalty tax on premature withdrawals applies EXCEPT in which of the following situations? A. The withdrawal was made by reason of the contract owner's death B. Any of the circumstances described C. The contract owner is at least age 59 1/ D. The contract owner is disabled - ANS:->>>B Rationale: the 10% penalty tax on premature withdrawals does not apply when any of the circumstances described are present Premiums paid for a personal annuity contract are
A. Both ANSs are correct B. Neither ANS is correct C. Interest-out-first rule D. 10% penalty tax - ANS:->>>A Rationale: tax restrictions on premature withdrawals from annuity contracts include both the interest-out-first rule and the 10% penalty tax All of these are features of fixed annuities EXCEPT A. A risk to principal B. A predictable rate of return C. A minimum interest rate guarantee D. A guarantee of principal - ANS:->>>A Rationale: fixed annuities have a guaranteed principal and a minimum interest rate guarantee, and therefore, a predictable rate of return Which of the following is a potential sign that someone is suffering from diminished capacity? A. The client wishes to bring her children into financial affairs
B. The client seems confused or disoriented C. The client balances her checkbook only once a week D. The client is concerned about current events - ANS:->>>B Rationale: the signs of diminished capacity can be observed in a senior client's cognitive functioning, emotional functioning, and behavioral functioning. These include confusion about simple items and disorientation. A risk-averse client seeking safety and preservation of principal is NOT a likely candidate for A. A traditional fixed annuity B. A variable annuity C. An indexed annuity D. A combined annuity - ANS:->>>B Rationale: a variable annuity carries risk. Therefore, it would not be appropriate for a risk-averse client who desires preservation of principal What is the primary use of a deferred annuity? A. Tax-free income B. Liquidity
A. Insurance producers B. Investment advisors C. Broker dealers and associated persons D. All licensed insurance adjustors - ANS:->>>A Rationale: producer means a person or entity required to be licensed under the laws of this state to sell, solicit, or negotiate insurance, including annuities. For purposes of this regulation, producer includes an insurer where no producer is involved. Consumer profile information about a prospect must be considered by a producer who is deciding whether to recommend an annuity to the prospect. This Suitability information about a prospect in an annuity transaction includes all of the following EXCEPT A. Liquidity net worth B. Financial time horizon C. Intended use of the annuity D. Current health status - ANS:->>>D Rationale: consumer profile information is information that is reasonably appropriate to determine whether a recommendation addresses the consumer's financial situation, insurance needs, and financial objectives. It does not include
current health status An insurer must establish a supervision system reasonably designed to achieve the insurer's and its producers' compliance with the NAIC suitability regulation by doing all of the following EXCEPT A. Providing product-specific training and training materials to its insurance producers B. Maintaining reasonable procedures to inform its producers of the requirements of the regulation and incorporating such requirements into relevant product training manuals C. Establishing standards for product specific training for its producers and maintaining reasonable procedures to require its producers to comply with the producer training requirements of the regulation D. Maintaining procedures to review each recommendation within 90 days after issuing an annuity - ANS:->>>D Rationale: the insurer must establish and maintain procedures for the review of each recommendation, PRIOR to the issuance of an annuity, that are designed to ensure that there is a reasonable basis to determine that the recommended annuity would effectively address the particular consumer's financial situation, insurance needs and financial objectives When recommending an annuity, an insurance producer, or insurer where no
representative where no producer is involved, must make a record of any recommendation to a consumer to purchase or exchange an annuity that results in another insurance transaction C. An insurer's issuance of an annuity generally must be reasonable based on all the circumstances actually known to the insurer at the time it issued the annuity D. An insurance producer and insurer owe no duty to a consumer regarding an annuity transaction when no recommendation was made - ANS:->>>A Rationale: consumer profile information is information that is reasonably appropriate to determine whether a recommendation addresses the consumer's financial situation, insurance needs, and financial objectives. It is to be collected before a recommendation is made. In most cases, the annuitant's cost in the annuity contract A, will be taxed at distribution B. Is taxed at capital gains rates C. Is not taxed D. Is withdrawn before earnings - ANS:->>>C Rationale: in most cases, annuities are purchase with after-tax dollars. Because these dollars have already been taxed, they are not taxed again when they are paid out of the annuity to the annuity owner.
An annuity is sometimes called the flip side of A. Compounding B. Qualified retirement plans C. Social Security D. Life insurance - ANS:->>>D Rationale: an annuity protects against living too long (and outliving one's financial resources), while life insurance protects against dying too soon (and leaving one's surviving dependents without sufficient financial resources) Which of the following statements about annuities is TRUE? A. Earnings within an annuity have a tax advantage over earnings within a bank CD B. The annual increase in an annuity must be declared as income each year C. Annuity payments are entirely exempt from federal income tax D. There is no difference between the tax treatment of annuities and other financial vehicles - ANS:->>>A Rationale: bank CD earnings are taxable as income in the year earned, while annuity earnings kept inside the annuity are not. This gives annuities a tax advantage over bak CDs
