Insurance MCQ

Which of the following statements is (are) TRUE regarding variable annuity contracts? I The principal amount is guaranteed prior to annuitization by the insurance company that issues the contract II The principal amount is guaranteed after annuitization by the insurance company that issues the contract III The contract holder loses control of the principal amount prior to annuitization IV The contract holder loses control of the principal amount after annuitization A. I and III only B. II and IV only C. IV only D. I, II, III, IV Answer: C.

What will change the cash value of a variable life policy? A. Changes in expenses B. Changes in market value C. Changes in death benefit D. Changes in beneficiary Answer: B.

A customer who buys a variable life policy is most susceptible to: A. purchasing power risk B. market risk C. default risk D. exchange rate risk Answer: B.

A registered representative that wishes to recommend a variable annuity to a customer must make reasonable efforts to obtain the customer's: I intended use of the variable annuity II investment time horizon III existing assets including insurance holdings IV liquidity needs A. I and II only B. III and IV only C. I, II, III only D. I, II, III, IV Answer: D.

The "death benefit" associated with a variable annuity contract means that if the contract holder dies: A. prior to annuitization, the amount invested in the contract is returned to a beneficiary B. after annuitization, the amount invested in the contract is returned to a beneficiary C. prior to annuitization, the insurance company will make a lump sum payment to complete the terms of the contract D. after annuitization, the insurance company will pay for the insured's burial expenses Answer: A.

If the actual interest rate earned in the separate account underlying a variable annuity contract is lower than the "AIR," the annuity payment: A. will increase B. will decrease C. is unaffected D. is fixed at a minimum amount Answer: B.

Which of the following statements are TRUE regarding the "AIR" stated in a variable annuity prospectus? I The AIR is an aggressive illustration of an interest rate for the annuity II The AIR is a conservative illustration of an interest rate for the annuity III The AIR is the minimum guaranteed rate of return IV The AIR is not a guaranteed rate of return A. I and III B. I and IV C. II and III D. II and IV Answer: D.

When comparing fixed annuities to variable annuities, which statements are TRUE? I A fixed annuity account grows at a guaranteed rate II A variable annuity account grows at a guaranteed rate III Fixed annuities are subject to investment risk IV Variable annuities are subject to investment risk A. I and III B. I and IV C. II and III D. II and IV Answer: B.

Which of the following statements are TRUE for both mutual funds and variable annuities? I Asset appreciation is untaxed for both II Dividend and capital gains distributions are taxable each year for both III Both have portfolios that are managed IV Both are regulated by the Investment Company Act of 1940 A. I and II only B. III and IV only C. I, III, IV D. I, II, III, IV Answer: C.

Which of the following statements are TRUE for both mutual funds and variable annuities that are in the accumulation phase? I Distributions are taxable to the holder in the year the distribution is made II The underlying portfolios are managed III The Investment Company Act of 1940 is the regulating legislation IV The return to investors is dependent on the performance of the securities in the underlying portfolio A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV Answer: C.

Which of the following statements are TRUE regarding mutual funds and variable annuities that are in the accumulation phase? I Distributions to mutual fund shareholders are taxable to the holder in the year the distribution is made II Distributions to mutual fund shareholders are tax deferred III Distributions to variable annuity holders are taxable to the holder in the year the distribution is made IV Distributions to variable annuity holders are tax deferred A. I and III B. I and IV C. II and III D. II and IV Answer: B.

Which of the following are purchase and payout options for variable annuity contracts? I Lump sum payment; Immediate annuity II Lump sum payment; Deferred annuity III Periodic payments; Immediate annuity IV Periodic payments; Deferred annuity A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV Answer: C.

Which statements are TRUE regarding the annuitization of a variable annuity contract? I A Life Annuity payout option may be elected by the policy holder II Life Annuity-Period Certain is the preferred payout option III The number of annuity units is fixed; the annuity payment may vary IV The annuity payment is fixed; the number of annuity units may vary A. I and III B. II and III C. I and IV D. II and IV Answer: A.

A customer buys a variable annuity and elects a payout option of Life Income with a 20 year period certain. This means that payments will continue for: A. the annuitant's life, not to exceed 20 years B. the annuitant's life, but if he dies before 20 years elapse, payments continue to his heir(s) C. the life of the annuitant and then cease D. 20 years to the annuitant or beneficiary Answer: B.

Which annuity payout option usually results in the largest periodic payment? A. Unit Refund Annuity B. Joint and Last Survivor Annuity C. Life Annuity D. Life Annuity-Period Certain Answer: C.

All of the following are variable annuity payment options EXCEPT: A. Life Annuity B. Life Annuity with Period Certain C. Joint and Last Survivor D. Joint Tenants with Rights of Survivorship Answer: D.

An "annuity unit" of a variable annuity contract is a(n): A. share of common stock representing an interest in the underlying portfolio B. accounting measure of the owner's interest in the separate account C. accounting measure of the annuity amount to be received by the owner D. share of beneficial interest in a fixed portfolio Answer: C.

During the accumulation phase of a variable annuity contract, reinvested: I dividends and interest are tax deferred II capital gains are tax deferred III dividends and interest are taxable IV capital gains are taxable A. I and II only B. III and IV only C. I and IV only D. II and III only Answer: A.

During the accumulation phase of a variable annuity: A. payments can be made into the plan; but distributions may not be taken from the plan B. distributions may be taken from the plan; but payments may not be made into the plan C. both payments may be made into the plan; and distributions may be taken from the plan D. neither payments may be made into the plan; nor distributions may be taken from the plan Answer: A.

Payments into a variable annuity contract are deposited to the insurance company's: A. general account B. special account C. separate account D. special memorandum account Answer: C.