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Question 1 of 10
1. Question
Which of the following refers to specific investment accounts owned by an insurance company?
Correct
Separate accounts refer to specific investment accounts owned by an insurance company. These accounts are isolated from the insurance company’s general investments, which mean that they are not guaranteed by the insurance company (the investments provide a variable rate of return), although it also means that the investments are safe if the insurance company becomes insolvent.
Incorrect
Separate accounts refer to specific investment accounts owned by an insurance company. These accounts are isolated from the insurance company’s general investments, which mean that they are not guaranteed by the insurance company (the investments provide a variable rate of return), although it also means that the investments are safe if the insurance company becomes insolvent.
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Question 2 of 10
2. Question
When the annuitant is contributing funds into an annuity, he actually purchases particular units. These units are known as:
Correct
When the annuitant is contributing funds into an annuity, he actually purchases particular units. These units are accumulation units, and they vary in price; a series of fixed contributions by the annuitant might purchase more units or fewer, depending on the units.
Incorrect
When the annuitant is contributing funds into an annuity, he actually purchases particular units. These units are accumulation units, and they vary in price; a series of fixed contributions by the annuitant might purchase more units or fewer, depending on the units.
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Question 3 of 10
3. Question
Which of the following statement(s) is not true related to immediate payment annuities?
I. They are suitable for retired persons who fear they may outlast their retirement savings
II. These annuity payments are cancelled upon the death of the annuitant
III. They carry the risk
IV. Annuitant will receive an equal number of annuity units per distribution.Correct
Immediate payment annuities are suitable for retired persons who fear they may outlast their retirement savings, but since these annuity payments are cancelled upon the death of the annuitant, they carry the risk, in cases of early death, of significantly decreasing an inheritance.
Incorrect
Immediate payment annuities are suitable for retired persons who fear they may outlast their retirement savings, but since these annuity payments are cancelled upon the death of the annuitant, they carry the risk, in cases of early death, of significantly decreasing an inheritance.
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Question 4 of 10
4. Question
A provision in an insurance contract which waives the policyholder of any obligation to pay further premiums but still be entitled to the insurance benefits is called:
Correct
A waiver of premium is a provision in an insurance contract which waives the policyholder of any obligation to pay further premiums but still be entitled to the insurance benefits. This waiver kicks in due to some serious disability for the policyholder and usually only after the policyholder has been disabled for some period of time (e.g. six months)
Incorrect
A waiver of premium is a provision in an insurance contract which waives the policyholder of any obligation to pay further premiums but still be entitled to the insurance benefits. This waiver kicks in due to some serious disability for the policyholder and usually only after the policyholder has been disabled for some period of time (e.g. six months)
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Question 5 of 10
5. Question
In which of the following process an annuity investment is converted into payments?
Correct
Annuitization is the process by which an annuity investment is converted into payments. The fixed annuitization method takes the total account balance for the annuitant and divides it by a particular annuity factor (which factor is derived from an IRS table) to arrive at an equal payment that cannot later be changed.
Incorrect
Annuitization is the process by which an annuity investment is converted into payments. The fixed annuitization method takes the total account balance for the annuitant and divides it by a particular annuity factor (which factor is derived from an IRS table) to arrive at an equal payment that cannot later be changed.
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Question 6 of 10
6. Question
Which of the following relates to the rate of growth, assumed by the insurance company that is necessary for the underlying investments of an annuity to cover the insurance company’s costs and provide the company with its target profit margin?
Correct
The assumed interest rate (AIR) is the rate of growth, assumed by the insurance company that is necessary for the underlying investments of an annuity to cover the insurance company’s costs and provide the company with its target profit margin. The AIR enters into the calculation to determine an annuitant’s periodic income payments.
Incorrect
The assumed interest rate (AIR) is the rate of growth, assumed by the insurance company that is necessary for the underlying investments of an annuity to cover the insurance company’s costs and provide the company with its target profit margin. The AIR enters into the calculation to determine an annuitant’s periodic income payments.
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Question 7 of 10
7. Question
Which of the following annuity gives periodic payments to the annuitant during the annuity’s distribution period, then each payment will be considered as partly a return of the original investment and partly a gain on the investment?
I. Fixed annuities
II. Variable annuities
III. Death benefits on annuities
IV. Distributed annuityCorrect
If an annuity gives periodic payments to the annuitant during the annuity’s distribution period, then each payment will be considered as partly a return of the original investment (and thus nontaxable) and partly a gain on the investment (and thus taxable). For fixed annuities (annuities paying a series of fixed payments), the particular composition of principal and gain (i.e. original investment and gain) is determined by an exclusion ratio, which is calculated as follows:
Exclusion Ratio = Original Investment / Expected Total PayoutIncorrect
If an annuity gives periodic payments to the annuitant during the annuity’s distribution period, then each payment will be considered as partly a return of the original investment (and thus nontaxable) and partly a gain on the investment (and thus taxable). For fixed annuities (annuities paying a series of fixed payments), the particular composition of principal and gain (i.e. original investment and gain) is determined by an exclusion ratio, which is calculated as follows:
Exclusion Ratio = Original Investment / Expected Total Payout -
Question 8 of 10
8. Question
During which of the following period if an annuitant dies, then the money will go to the specified beneficiaries, who will have to pay taxes on any gain earned in the annuity up to that point; they will have to pay ordinary income tax rates:
Correct
If an annuitant dies in the accumulation period, then the money will go to the specified beneficiaries, who will have to pay taxes on any gain earned in the annuity up to that point; they will have to pay ordinary income tax rates.
Incorrect
If an annuitant dies in the accumulation period, then the money will go to the specified beneficiaries, who will have to pay taxes on any gain earned in the annuity up to that point; they will have to pay ordinary income tax rates.
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Question 9 of 10
9. Question
Which of the following term relates to the payments being made to the annuitant while he is alive, so that the company is not obligated to make any other payments if he dies:
Correct
A “life-only annuity” means that payments are made to the annuitant while he is alive, so that the company is not obligated to make any other payments if he dies.
Incorrect
A “life-only annuity” means that payments are made to the annuitant while he is alive, so that the company is not obligated to make any other payments if he dies.
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Question 10 of 10
10. Question
Which of the following statements is (are) true related to direct participation programs?
I. It contains at least one general partner and at least one limited partner
II. The profits, losses, and income flow directly
III. It itself pays no taxes
IV. It has more responsibilities and liabilities than does the limited partnerCorrect
Direct participation programs (DPPs), also called direct participation plans, are flow-through investments. The profits, losses, and income flow through the DPP and to the investors directly. The DPP itself pays no taxes; only the individual investors do. DPPs are organized as limited partnerships, and the two terms are generally used interchangeably.
Incorrect
Direct participation programs (DPPs), also called direct participation plans, are flow-through investments. The profits, losses, and income flow through the DPP and to the investors directly. The DPP itself pays no taxes; only the individual investors do. DPPs are organized as limited partnerships, and the two terms are generally used interchangeably.