RMI 3011 Final Exam Question and
answers rated A+
Which of the following statements is (are) true with respect to annuities?
I. Annuities are the opposite of life insurance.
II. The fundamental purpose of annuities is to replace lost income in case of
premature death. - correct answer ✔I only
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?
,I. Some joint-and-survivor annuities reduce the income payment after the first
annuitant dies.
II. No payments are made after the first annuitant dies. - correct answer ✔I
only
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?
I. The taxable portion of the distribution is subject to federal and state income
taxes.
II. The option results in adverse selection against the insurer as those in poor
health are more likely to take cash than to annuitize the funds. - correct
answer ✔both I and II
Which of the following statements is (are) true with respect to variable
annuities?
I. The price at which accumulation units can be purchased fluctuates during
the funding period.
II. The value of annuity units fluctuates over time. - correct answer ✔both I
and II
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?
I. The maximum percentage gain is usually capped.
II. There is no downside protection against loss of principal if the annuity is
held to term. - correct answer ✔I only
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?
I. The exclusion ratio is the percentage of the annuity income that is taxable.
II. After the net cost of the annuity has been paid to the annuitant, the total
annuity payment is taxable. - correct answer ✔II only
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 ✔50.00 percent
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
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). If Juanita is alive 20 years later, how much of the
$6,000 received during the year is taxable? - correct answer ✔$6,000
Which of the following statements is (are) true regarding the taxation of
distributions from individual annuities?
I. Individual annuity distributions are never taxable.
II. Once the annuitant has recovered the premiums he or she paid for the
annuity, the entire annuity distribution is taxable - correct answer ✔II only
Which of the following is a permissible IRA investment alternative? - correct
answer ✔mutual funds
answers rated A+
Which of the following statements is (are) true with respect to annuities?
I. Annuities are the opposite of life insurance.
II. The fundamental purpose of annuities is to replace lost income in case of
premature death. - correct answer ✔I only
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?
,I. Some joint-and-survivor annuities reduce the income payment after the first
annuitant dies.
II. No payments are made after the first annuitant dies. - correct answer ✔I
only
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?
I. The taxable portion of the distribution is subject to federal and state income
taxes.
II. The option results in adverse selection against the insurer as those in poor
health are more likely to take cash than to annuitize the funds. - correct
answer ✔both I and II
Which of the following statements is (are) true with respect to variable
annuities?
I. The price at which accumulation units can be purchased fluctuates during
the funding period.
II. The value of annuity units fluctuates over time. - correct answer ✔both I
and II
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?
I. The maximum percentage gain is usually capped.
II. There is no downside protection against loss of principal if the annuity is
held to term. - correct answer ✔I only
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?
I. The exclusion ratio is the percentage of the annuity income that is taxable.
II. After the net cost of the annuity has been paid to the annuitant, the total
annuity payment is taxable. - correct answer ✔II only
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 ✔50.00 percent
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
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). If Juanita is alive 20 years later, how much of the
$6,000 received during the year is taxable? - correct answer ✔$6,000
Which of the following statements is (are) true regarding the taxation of
distributions from individual annuities?
I. Individual annuity distributions are never taxable.
II. Once the annuitant has recovered the premiums he or she paid for the
annuity, the entire annuity distribution is taxable - correct answer ✔II only
Which of the following is a permissible IRA investment alternative? - correct
answer ✔mutual funds
