RMI 3011 Exam 3 Study Guide Question
and answers correctly
Which of the following statements is/are true with respect to annuities? -
correct answer ✔annuities are the opposite of life insurance
When selling life annuities, what risk is the insurer pooling? - correct answer
✔excessive longevity
Life annuity payments are made up of all of the following EXCEPT: - correct
answer ✔unliquidated principal of annuitants who live too long
Stan paid an insurance company $50,000 for a fixed annuity when he was 50
years old. At age 62, Stan plans to begin to receive payments from the
insurer. There are no guarantees on the number of payments he will receive.
Based on the description provided, this annuity can be described as a(n) -
correct answer ✔deferred annuity
Cassie, age 62, paid a life insurer $100,000 in exchange for a life annuity. If
Cassie dies before receiving 120 monthly payments from the insurer, the
remaining payments will be made to a beneficiary. If Cassie dies after
receiving 120 payments, no additional payments are made by the insurer. The
annuity option Cassie selected it - correct answer ✔life annuity with period
certain
Which of the following statements is/are true with respect to a joint-and-
survivor annuity? - correct answer ✔some joint-and-survivor annuities
reduce the income payment after the first annuitant dies
During the funding period, the premiums paid for a variable annuity are used
to purchase: - correct answer ✔accumulation units
,Brad funded a life annuity through installment payments. At age 60, he
decided to elect an annuity settlement option and to begin to receive
payments. Which of the following annuity payout options will provide Brad with
the highest monthly income? - correct answer ✔life annuity (no refund)
Which of the following statements is/are true with respect to the cash annuity
settlement option? - correct answer ✔-the taxable portion of the distribution
is subject to federal and state income taxes
-the option results in adverse selection against the insurer as those in poor
health are more likely to take cash than to annuities funds
Which of the following statements is/are true with respect to variable
annuities? - correct answer ✔-the price at which accumulation units can be
purchased fluctuates during the funding period
-the value of annuity units fluctuates over time
Bridget started to fund a variable annuity. Three years later, she experienced
financial difficulty. She called her agent and cancelled the contract. The
insurer returned all but 4 percent of the account balance. The 4 percent kept
by the insurer is a(n) - correct answer ✔surrender charge
Insurers offering variable annuities charge a number of expenses. One
category of expenses is to pay the fund manager and to pay brokerage fees.
This expense is the - correct answer ✔investment management charge
Insurers offering variable annuities charge a number of fees and expenses.
One category of fees and expenses is charged to cover the cost of record
keeping, paperwork, and periodic reports to annuity owners. This expense is
the - correct answer ✔administrative charge
,Which of the following statements about variable annuities is true? - correct
answer ✔variable annuities typically provide a guaranteed death benefit
payable to a beneficiary if the annuitant dies prior to retirement
Which of the following statements is (are) true with respect to an equity-
indexed annuity? - correct answer ✔The maximum percentage gain is
usually capped.
With an equity-indexed annuity, what name is given to the method of crediting
excess interest to the annuity? - correct answer ✔the indexing method
Under an equity-indexed annuity, what name is given to the percentage
increase in the stock index that is credited to the contract? - correct answer
✔the participation rate
Which of the following statements regarding the taxation of individual
annuities is (are) true? - correct answer ✔After the net cost of the annuity
has been paid to the annuitant, the total annuity payment is taxable.
Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.
Juanita will receive $500 per month from the insurer, and her life expectancy
is 15 years (180 months). What is the exclusion ratio in this case? - correct
answer ✔50%
Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.
Juanita will receive $500 per month from the insurer, and her life expectancy
is 15 years (180 months). Assume that Juanita receives 12 monthly payments
of $500 the first year. How much taxable income must she report? - correct
answer ✔$3,000
, Which of the following statements is (are) true regarding the taxation of
distributions from individual annuities? - correct answer ✔Once the annuitant
has recovered the premiums he or she paid for the annuity, the entire annuity
distribution is taxable.
Which of the following is a permissible IRA investment alternative? - correct
answer ✔mutual funds
Which of the following statements is (are) true regarding the Roth IRA? -
correct answer ✔Roth IRA investment income accumulates income-tax free.
Rita is 66 years old. She earned $20,000 this year working part-time at a store
and her modified adjusted gross income was $28,000. Rita is considering
making a $3,000 contribution to her traditional IRA. Which of the following
statements is true regarding this contribution? - correct answer ✔D) Rita can
make a $3,000 contribution to her traditional IRA, and it is fully tax deductible.
Daryl, age 42, quit his job. His employer offered a defined contribution
pension plan, and the balance in the account was $30,000 when Daryl quit.
He can avoid immediate taxation of these funds by - correct answer ✔using
an IRA rollover account.
Which of the following statements is (are) true with regard to Roth IRAs? -
correct answer ✔There is a maximum income level above which Roth IRA
contributions are not allowed.
All of the following statements about traditional and Roth IRAs are true
EXCEPT: - correct answer ✔traditional IRAs are exempt from the penalty tax
on premature distributions
and answers correctly
Which of the following statements is/are true with respect to annuities? -
correct answer ✔annuities are the opposite of life insurance
When selling life annuities, what risk is the insurer pooling? - correct answer
✔excessive longevity
Life annuity payments are made up of all of the following EXCEPT: - correct
answer ✔unliquidated principal of annuitants who live too long
Stan paid an insurance company $50,000 for a fixed annuity when he was 50
years old. At age 62, Stan plans to begin to receive payments from the
insurer. There are no guarantees on the number of payments he will receive.
Based on the description provided, this annuity can be described as a(n) -
correct answer ✔deferred annuity
Cassie, age 62, paid a life insurer $100,000 in exchange for a life annuity. If
Cassie dies before receiving 120 monthly payments from the insurer, the
remaining payments will be made to a beneficiary. If Cassie dies after
receiving 120 payments, no additional payments are made by the insurer. The
annuity option Cassie selected it - correct answer ✔life annuity with period
certain
Which of the following statements is/are true with respect to a joint-and-
survivor annuity? - correct answer ✔some joint-and-survivor annuities
reduce the income payment after the first annuitant dies
During the funding period, the premiums paid for a variable annuity are used
to purchase: - correct answer ✔accumulation units
,Brad funded a life annuity through installment payments. At age 60, he
decided to elect an annuity settlement option and to begin to receive
payments. Which of the following annuity payout options will provide Brad with
the highest monthly income? - correct answer ✔life annuity (no refund)
Which of the following statements is/are true with respect to the cash annuity
settlement option? - correct answer ✔-the taxable portion of the distribution
is subject to federal and state income taxes
-the option results in adverse selection against the insurer as those in poor
health are more likely to take cash than to annuities funds
Which of the following statements is/are true with respect to variable
annuities? - correct answer ✔-the price at which accumulation units can be
purchased fluctuates during the funding period
-the value of annuity units fluctuates over time
Bridget started to fund a variable annuity. Three years later, she experienced
financial difficulty. She called her agent and cancelled the contract. The
insurer returned all but 4 percent of the account balance. The 4 percent kept
by the insurer is a(n) - correct answer ✔surrender charge
Insurers offering variable annuities charge a number of expenses. One
category of expenses is to pay the fund manager and to pay brokerage fees.
This expense is the - correct answer ✔investment management charge
Insurers offering variable annuities charge a number of fees and expenses.
One category of fees and expenses is charged to cover the cost of record
keeping, paperwork, and periodic reports to annuity owners. This expense is
the - correct answer ✔administrative charge
,Which of the following statements about variable annuities is true? - correct
answer ✔variable annuities typically provide a guaranteed death benefit
payable to a beneficiary if the annuitant dies prior to retirement
Which of the following statements is (are) true with respect to an equity-
indexed annuity? - correct answer ✔The maximum percentage gain is
usually capped.
With an equity-indexed annuity, what name is given to the method of crediting
excess interest to the annuity? - correct answer ✔the indexing method
Under an equity-indexed annuity, what name is given to the percentage
increase in the stock index that is credited to the contract? - correct answer
✔the participation rate
Which of the following statements regarding the taxation of individual
annuities is (are) true? - correct answer ✔After the net cost of the annuity
has been paid to the annuitant, the total annuity payment is taxable.
Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.
Juanita will receive $500 per month from the insurer, and her life expectancy
is 15 years (180 months). What is the exclusion ratio in this case? - correct
answer ✔50%
Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.
Juanita will receive $500 per month from the insurer, and her life expectancy
is 15 years (180 months). Assume that Juanita receives 12 monthly payments
of $500 the first year. How much taxable income must she report? - correct
answer ✔$3,000
, Which of the following statements is (are) true regarding the taxation of
distributions from individual annuities? - correct answer ✔Once the annuitant
has recovered the premiums he or she paid for the annuity, the entire annuity
distribution is taxable.
Which of the following is a permissible IRA investment alternative? - correct
answer ✔mutual funds
Which of the following statements is (are) true regarding the Roth IRA? -
correct answer ✔Roth IRA investment income accumulates income-tax free.
Rita is 66 years old. She earned $20,000 this year working part-time at a store
and her modified adjusted gross income was $28,000. Rita is considering
making a $3,000 contribution to her traditional IRA. Which of the following
statements is true regarding this contribution? - correct answer ✔D) Rita can
make a $3,000 contribution to her traditional IRA, and it is fully tax deductible.
Daryl, age 42, quit his job. His employer offered a defined contribution
pension plan, and the balance in the account was $30,000 when Daryl quit.
He can avoid immediate taxation of these funds by - correct answer ✔using
an IRA rollover account.
Which of the following statements is (are) true with regard to Roth IRAs? -
correct answer ✔There is a maximum income level above which Roth IRA
contributions are not allowed.
All of the following statements about traditional and Roth IRAs are true
EXCEPT: - correct answer ✔traditional IRAs are exempt from the penalty tax
on premature distributions
