PART 4—STUDY QUESTIONS

1. What are some of the key factors that explain the late-20th-century need for savings and investment? (2.1–2.2)

2. List the primary types of annuities (and their features) as described on the "annuity decision tree." (2.3)

3. Define each of the following annuity-related terms. (2.3–2.4)

a. owner

b. annuitant

c. beneficiary

4. Describe the key elements of the following immediate annuities. (2.4–2.6)

a. installment payment—fixed amount

b. installment payment—fixed period

c. life annuity

d. life and period certain

e. life and refund certain

f. joint and survivor life annuity

g. joint and survivor life annuity with period certain

h. joint and survivor life annuity with refund certain

5.    Describe the history of the variable immediate annuity. (2.11)

6.    What are the basic distinctions between fixed and variable annuities? (2.12)

7.    List the main characteristics of a deferred annuity. (2.13–2.14)

8.    What are the primary factors to consider in the selection of a fixed versus a variable annuity? (2.14)

9.    Describe the various categories of deferred annuities by premium payment. (2.15–2.16)

10. Describe the considerations to be used in the selection of a deferred fixed annuity. (2.16–2.18)

11.   What are the primary characteristics of a deferred variable annuity? (2.18)

12. Describe the advantages to be gained by the purchase of a deferred variable annuity. (2.18–2.20)

13. Explain how the following expense elements of an annuity are calculated into its ongoing administration. (2.21–2.22)

a. spread 

b. annual fees 

c. surrender charges 

d. state premium taxes 

e. mortality and expense charges 

f. separate account expenses 

g. front-end charges 

h. free corridor withdrawals

14. List the items one should consider when evaluating a potential annuity purchase. (2.24–2.26)

15. Describe how the following federal taxation laws affect annuities. (2.26–2.31)

a. IRC Sec. 72

b. exclusion ratio

c. TEFRA

d. DEFRA

e. Tax Reform Act of 1986

f. TAMRA

g. Pre-age 59 1/2 taxation and penalties

16. List some of the primary differences between qualified and nonqualified annuities. (2.31–2.32)

17. Explain the principal advantage of a qualified plan that uses annuities as a funding device. (2.33)

18. Describe the exclusion ratio and its impact on the taxation of nonqualified annuity income. (2.34–2.35)

19. Describe how the minimum distribution rule affects the payment of annuity benefits. (2.36–2.37)

20. What is the social security benefits tax, and how does it affect the payment of annuity benefits? (2.37)

21. Describe how the following transfer of ownership issues affect annuities. (2.38–2.39)

a. constructive receipt

b. Rule 1035

c. application of Rule 1035

d. gift strategies

22. Explain the relationship between the following items and the federal taxation laws after an annuitant’s death. (2.40–2.41)

a. estate taxes

b. the spouse is the beneficiary

c. the owner and annuitant are the same person

d. step up in basis

e. net benefits