How To Know If An Annuity Is Suitable

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CALIFORNIA ANNUITY TRAINING – 4 HOURS

1. A producer’s obligation to ensure that an annuity is suitable ends. A. when the customer signs the application

B. when the customer pays the first premium

C. when the annuity contract is delivered to the customer D. when the customer realizes the Benefits from the annuity 2. Which of the following statements about suitability requirements for

annuities is NOT true?

A. For an annuity to be suitable, its risks should be consistent with the client’s risk tolerance.

B. An annuity may be suitable even if the producer does not

understand the annuity’s features well enough to explain them to the client.

C. Suitability is especially important when dealing with senior citizens. D. Producers should periodically reassess the suitability of an annuity

after it is sold.

3. Which product is the ideal solution to meet every client’s retirement savings needs?

A. Annuities. B. Mutual funds

C. Whole life insurance

D. No one product is suitable for every clients retirement savings needs.

4. Which of the following is NOT a feature of an immediate annuity? A. The owner can revoke the payout option after benefit payments

begin.

B. Benefit payments can be guaranteed to last for life. C. Benefit payments receive favorable tax treatment.

D. The owner can select from a variety of payment options to structure the income flow.

5. The sole purpose for which immediate annuities are suitable is A. Long-term accumulation of a retirement fund

B. Serving as a substitute for life insurance

C. Systematic distribution of a principal sum of money over period of time.

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6. For an annuity to be a suitable recommendation, all of the following should be true EXCEPT

A. The client should anticipate the need to withdraw funds from the annuity during the surrender charge period.

B. The client should have a long-term investment horizon.

C. The client should have sufficient savings to cover 6 months of living expenses.

D. The client should have adequate life insurance protection 7. Which of the following statements about the tax features of deferred

annuities is TRUE?

A. The tax deferral feature of deferred annuities is enough by itself to make deferred annuities suitable for all investors.

B. Deferred annuities are the only financial vehicles that offer tax-deferred growth.

C. Earnings in a deferred annuity accumulate on a tax-deferred basis until they are withdrawn from the contract.

D. The tax deferral feature of deferred annuities is more beneficial for clients In low tax brackets than for clients in high tax brackets. 8. Which of the following annuity payout options is the most suitable for a

married couple who wants ensure that benefit payments will last for as long as either of them is alive?

A. Straight life

B. Life annuity with period certain

C. Refund annuity with cash refund option D. Joint and survivor

9. Which of the following best describes a bonus annuity?

A. Provides a bonus rate of interest during the first year or two of the contract.

B. Provides an enhanced first-year commission to the producer who sells it

C. Provides a return of premium if the owner dies before collecting benefits

D. Provides enhanced benefits if the owner ever needs long-term care 10. Which of the following fees compensates an insurance company for the

risk that annuitants will live longer than expected? A. Administrative fee

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B. Mortality fee C. Management fee D. Liquidity fee

11. The tax penalty on premature distributions from nonqualified annuities is A. 6%

B. 10% C. 12% D. 20%

12. Which annuities provide a guaranteed minimum rate of return in addition to the potential for higher, market-linked rates of return?

A. Fixed annuities and equity-indexed annuities B. Variable annuities and fixed annuities

C. Equity-indexed annuities D. Fixed annuities

13. The chief disadvantage of fixed annuities is that they are subject to market risk

they are difficult for clients to understand they offer no guarantee of principal

ÆD. their conservative return subjects them to inflation risk

14. A guaranteed payout annuity floor (GPAF) rider in a variable annuity guarantees that

A. The owner can eventually annuitize a certain minimum guaranteed income base regardless of how poorly the owner’s investment choices perform

B. The owner can make withdrawals free of surrender charges if the owner needs long-term care

C. Once payouts begin, no payment will ever be less than a specified percentage of the first payment

D. The owner will receive at least a return of principal, in a lump sum, after a specified waiting period.

15. Which of the following best describes the tax treatment of premiums an individual pays to purchase a nonqualified annuity?

A. Nondeductible personal expenses B. Deductible miscellaneous expenses C. Deductible medical expenses

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16. When an annuity sale involves a replacement, at what point must the applicant be supplied with a Notice Regarding Replacement?

A. No later than at the time of taking the application B. When the contract is issued

C. Anytime within the free-look period

D. Within 60 days after the payment of the first premium

17. When an annuity sale involves a replacement, who must sign the Notice Regarding Replacement?

A. The agent only B. The applicant only

C. Both the agent and the applicant D. Neither the agent nor the applicant

18. An annuity that is issued as a replacement for an existing annuity must allow a free-look period of

A. 10 days B. 30 days C. 45 days D. 60 days

19. A producer invites several senior citizens to a free seminar, at which the producer says he will provide free financial planning advice. However, when the senior citizens arrive, the producer uses aggressive sales tactics to sell annuities rather than providing financial planning. This is an

example of:

A. illegal rescission B. illegal replacement C. twisting

D. bait and switch advertising

20. If a client purchases a variable annuity but does not specify how the premium is to be invested, which of the following statement accurately describes how the premium may be invested during the free-look period? A. The premium may be invested only in fixed income investments

and money market funds

B. The premium may not be invested but must be returned to the client

C. The premium must be invested in the subaccount with the highest rate Of return over the past calendar year.

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D. The premium may be invested in any way the insurer feels is appropriate.

21. Which annuities provide benefit payments that are guaranteed to continue for at least as long as the annuitant is alive?

A. Temporary annuities B. Life annuities

C. Both life annuities and temporary annuities D. Neither life annuities nor temporary annuities

22. Which of the following statements about dollar cost averaging is TRUE? A. Dollar cost averaging provides a guarantee of investment gain B. Dollar cost averaging provides a guarantee against investment

loss.

C. Dollar cost averaging involves investing more when prices are rising.

D. Dollar cost averaging involved investing the same dollar amount at regular intervals, regardless of whether the price of the investment is rising or falling.

23. Which of the following statements about financial rating services is TRUE? A. the rating services sometimes differ in their ratings of particular

insurers.

B. the rating services all use the same scale to rate insurers. C. A positive rating by the rating services guarantees that an

insurance company will continue to be solvent.

D. A rating of A+ is the highest rating used by any of the rating services.

24. The lowest administrative penalty that can be assessed against a producer for a knowing violation of the replacement rules is A. $1,000

B. $5,000 C. $10,000 D. $30,000

25. A producer who is guilty of twisting may be punished with

A. A fine of up to $1,500 and imprisonment for up to 6 months B. A fine of up to $2,000 and imprisonment for up to 12 months C. A fine of up to $2,500 and imprisonment for up to 12 months D. A fine of $5,000 and imprisonment for up to 24 months

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