CE 118: PART 5 ANSWERS TO SELECTED STUDY QUESTIONS

T	F	1.	The typical buyer of an annuity is over age 50 with an annual income of $40,000 to $80,000. (2.2)
T	F	2.	The purpose of purchasing an immediate annuity is to protect the annuitant against the risk of running out of income during life. (2.4)
T	F	3.	Under the installment payment—fixed period type of annuity, you dictate the annuity benefit, and the insurance company tells you how long that benefit will be paid whether you live or die. (2.4)
T	F	4.	Under the life and refund certain annuity, you elect to receive a life income. However, if you do not live long enough to receive all of the principal, it will be refunded to your named beneficiary in monthly installments or cash. (2.7)
T	F	5.	The current market for variable annuities is large, and many insurers offer the product for sale. (2.12)
T	F	6.	One example of a "liquidity inhibitor" is the federal income tax. (2.13)
T	F	7.	Fixed annuities are multiple pocket investments, offering a wide variety of investment choices in which to invest your capital. (2.14)
T	F	8.	People who fear the stock market love the idea of putting their money in a guaranteed-interest account and moving their interest payments into stock accounts each month. (2.16)
T	F	9.	During periods of increasing interest rates, the new money rate will allow the insurance company to credit lower interest rates. (2.17)
T	F	10.	A safe haven account is an account where contract holders can escape from stock market volatility and earn a reasonable rate of return. (2.20)
T	F	11.	A fixed annuity "spread" is made up of interest costs plus profits. (2.22)
T	F	12.	Insurance expenses in a variable annuity are charged against the investment sub-accounts in the variable annuity. (2.22)
T	F	13.	Mortality and expense charges are always charged to the annuitant in the form of up-front charges against premium payments. (2.22)
T	F	14.	A Lipper study of investment returns concluded that mutual funds typically outperform variable annuities. (2.23)
T	F	15.	Separate account expenses are also referred to as management fees. (2.23)
T	F	16.	A free corridor withdrawal fee is paid from your annuity if you surrender the contract during its early years. (2.24)
T	F	17.	Bail-out provisions are used by the insurance company to charge annuitants extra surrender charges should they wish to cash in their contracts if the interest rate falls below a certain percentage. (2.25)
T	F	18.	An exclusion ratio represents that portion of an annuity benefit that is received free of federal income tax. (2.26)
T	F	19.	If an annuitant dies before annuitization has begun, the spouse beneficiary becomes the owner and deferral of the annuity may continue. (2.27)
T	F	20.	The Deficit Reduction Act of 1985 (DEFRA) created the spousal exemption for annuities. Because of this rule, almost all annuities are structured to have one spouse as an owner and the other as a beneficiary. (2.28)
T	F	21.	The Tax Reform Act of 1986 allowed corporations and partnerships to own annuities and to enjoy the tax advantages gained by the inside build-up. (2.28)
T	F	22.	The aggregation rule effectively ruled out multiple purchases of variable annuities in the same year from different insurers by the same person. (2.29)
T	F	23.	Non-qualified annuities are those annuities that a person invests in on an individual basis. (2.33)
T	F	24.	The minimum distribution rule states that a person must take a distribution from his or her qualified plan by June 1 of the year in which they attain age 70 1/2. (2.36)
T	F	25.	Under Internal Revenue Code Sec. 1035, exchanges of an annuity to an annuity can be carried out without federal income tax consequences. (2.38)