Annuity – WebCE (2026) EXAM QUESTIONS
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Annuitization is
Accumulated values are converted into a stream of periodic income payments.
How often can payments of annuities be paid out?
A specified term of years, for life, or a combination of the two.
What is the reason (how has a consumer's priorities and needs shifted) that annuities are well
suited for late-life retirement planning?
When a consumer priorities and needs typically shift from asset accumulation to income
distribution
What is the start date range for deferred income annuities?
Anywhere from 13 months to 40 years in the future.
What is the age that Deferred Income Annuities' income start date cannot extend past?
85 years old.
What are Surrender Charges?
Fees the insurer assess for early withdrawals or contract surrenders.
What is a Withdrawal Fee?
when less than the full contract value is taken.
What are the two approaches for insurers to determine the surrender charge?
What are other ways?
1) Account Value Method
2) Premium Deposit Method
3) Market Value Adjustments
4) Premium Tax
What is the Premium Deposit Method of determining the surrender charge?
,The charge on the amount of the contract's invested premium, applying a percentage that
usually declines annually over the surrender charge period.
What is the Account Value Method of determining the surrender charge?
Assess a surrender charge equal to some percentage of the contract's accumulated value.
What is Premium Tax in relation to the annuity?
A number of states impose a tax on annuity premiums.
What does the Mortality and Expense (M&E) charge?
Assessed against the values of the separate subaccounts and is deducted before accumulation
unit values are calculated.
It helps ensure that the insurer can meet its contractual obligations for annualized income
payments and a minimum death benefit.
The cost of a variable annuity's death benefit and annuity charge plus related insurer costs (such
as agent commissions and overhead)
Which expense of a Variable Annuity, which is the most criticized? And why?
The Mortality and Expense.
What fees are built into the Fixed Annuity Contract's interest rate?
The Commissions it pays to its producers and distributors, its operational costs and reserve
requirements, and generates profits.
1) Commissions
2) Operational costs
3) Profits
What are the annuity drawbacks?
1- Lack of Liquidity
2- Contract Surrender Charges
3- Tax Penalties for Early Withdrawals (Withdrawals taken before age 59½ may be subject to a
10 percent IRS penalty tax unless an exception applies.)
4- Fees and Charges that may be Higher than those associated with other Investments (Annual
,fee to manage/administer it. Typically .3% of Value of Annuity or Flat Fee of $25/Year)
5- No Capital Gains Treatment of Distributed Funds (Taxed as Ordinary Income)
6- No Step-Up in Basis for Beneficiaries
7- Complex Design
What are the Pro's for Annuities?
1- Tax Deferral
2- Death Benefits
3- Flexible Funding
4- Variety of Annuitized Payout Options
5- No Limits on Contributions
6- Probate Avoidance
7-Lifetime Income Options through Annuitization
8- Income Options other than Annuitization
9- Contract Fee Waivers for "Crisis" Situations
Annuity owner responsibilities:
- APPLIES for and SIGNS Annuity APPLICATION, ACCEPTING the CONTRACT and its PROVISIONS
- DESIGNATES the ANNUITANT and the BENEFICIARY
- Receives the BENEFIT OF TAX DEFERRAL
- SPECIFIES the Contract's Annuitization DATE and PERIOD. DECIDES when annuity payments will
begin and selects the contract's PAYOUT OPTION, which determines How Long Payments will
LAST.
- Can Make Contract WITHDRAWALS
- Can Choose to LIQUIDATE or SURRENDER the Contract before the Annuitization date
-Determines how the contract's Funds will be INVESTED and ALLOCATED among the insurer's
investment options, if the contract is a Variable Annuity.
- Can AUTHORIZE CHANGES to the Contract.
, - Can ASSIGN the Contract or even Designate a New Owner
- Assumes LIABILITY FOR TAXES owed on Withdrawals and Payouts
What are the two types of Annuity Contracts?
Owner Driven (OD) - pay the death benefit when the owner dies
Annuitant Driven (AD)- pay the death benefit when the annuitant dies.
The beneficiary of an annuity has how many rights in the contract before the owner or
annuitant dies?
No Rights.
What are the two fundamental factors that separate one type of annuity from another?
1) When the Contract is Scheduled. (Immediate and Deferred Annuities)
2) How the Contract's funds are invested. (Fixed, Indexed, and Variable Annuities)
What are Immediate Annuities often referred to as?
SPIAs - Single Premium Immediate Annuities
What type of income streams can SPIAs generate?
- Fixed and unchanging
-Variably (which can increase or decrease according to the performance of underlying
investment accounts)
Fixed or Variable, the duration of the immediate annuity income stream is guaranteed by the
insurer.
What type of Annuity is designed to accumulate funds for the long-term?
Deferred Annuities
The period during which funds are deposited into the contract and are credited with a certain
rate of interest earnings or grow in relation to the performance of the investments in which
they are deposited is known as what stage?
Accumulation Stage.
AND ALL CORRECT ANSWERS 100% SOLVED
AND GUARANTEED SUCCESS!!
Annuitization is
Accumulated values are converted into a stream of periodic income payments.
How often can payments of annuities be paid out?
A specified term of years, for life, or a combination of the two.
What is the reason (how has a consumer's priorities and needs shifted) that annuities are well
suited for late-life retirement planning?
When a consumer priorities and needs typically shift from asset accumulation to income
distribution
What is the start date range for deferred income annuities?
Anywhere from 13 months to 40 years in the future.
What is the age that Deferred Income Annuities' income start date cannot extend past?
85 years old.
What are Surrender Charges?
Fees the insurer assess for early withdrawals or contract surrenders.
What is a Withdrawal Fee?
when less than the full contract value is taken.
What are the two approaches for insurers to determine the surrender charge?
What are other ways?
1) Account Value Method
2) Premium Deposit Method
3) Market Value Adjustments
4) Premium Tax
What is the Premium Deposit Method of determining the surrender charge?
,The charge on the amount of the contract's invested premium, applying a percentage that
usually declines annually over the surrender charge period.
What is the Account Value Method of determining the surrender charge?
Assess a surrender charge equal to some percentage of the contract's accumulated value.
What is Premium Tax in relation to the annuity?
A number of states impose a tax on annuity premiums.
What does the Mortality and Expense (M&E) charge?
Assessed against the values of the separate subaccounts and is deducted before accumulation
unit values are calculated.
It helps ensure that the insurer can meet its contractual obligations for annualized income
payments and a minimum death benefit.
The cost of a variable annuity's death benefit and annuity charge plus related insurer costs (such
as agent commissions and overhead)
Which expense of a Variable Annuity, which is the most criticized? And why?
The Mortality and Expense.
What fees are built into the Fixed Annuity Contract's interest rate?
The Commissions it pays to its producers and distributors, its operational costs and reserve
requirements, and generates profits.
1) Commissions
2) Operational costs
3) Profits
What are the annuity drawbacks?
1- Lack of Liquidity
2- Contract Surrender Charges
3- Tax Penalties for Early Withdrawals (Withdrawals taken before age 59½ may be subject to a
10 percent IRS penalty tax unless an exception applies.)
4- Fees and Charges that may be Higher than those associated with other Investments (Annual
,fee to manage/administer it. Typically .3% of Value of Annuity or Flat Fee of $25/Year)
5- No Capital Gains Treatment of Distributed Funds (Taxed as Ordinary Income)
6- No Step-Up in Basis for Beneficiaries
7- Complex Design
What are the Pro's for Annuities?
1- Tax Deferral
2- Death Benefits
3- Flexible Funding
4- Variety of Annuitized Payout Options
5- No Limits on Contributions
6- Probate Avoidance
7-Lifetime Income Options through Annuitization
8- Income Options other than Annuitization
9- Contract Fee Waivers for "Crisis" Situations
Annuity owner responsibilities:
- APPLIES for and SIGNS Annuity APPLICATION, ACCEPTING the CONTRACT and its PROVISIONS
- DESIGNATES the ANNUITANT and the BENEFICIARY
- Receives the BENEFIT OF TAX DEFERRAL
- SPECIFIES the Contract's Annuitization DATE and PERIOD. DECIDES when annuity payments will
begin and selects the contract's PAYOUT OPTION, which determines How Long Payments will
LAST.
- Can Make Contract WITHDRAWALS
- Can Choose to LIQUIDATE or SURRENDER the Contract before the Annuitization date
-Determines how the contract's Funds will be INVESTED and ALLOCATED among the insurer's
investment options, if the contract is a Variable Annuity.
- Can AUTHORIZE CHANGES to the Contract.
, - Can ASSIGN the Contract or even Designate a New Owner
- Assumes LIABILITY FOR TAXES owed on Withdrawals and Payouts
What are the two types of Annuity Contracts?
Owner Driven (OD) - pay the death benefit when the owner dies
Annuitant Driven (AD)- pay the death benefit when the annuitant dies.
The beneficiary of an annuity has how many rights in the contract before the owner or
annuitant dies?
No Rights.
What are the two fundamental factors that separate one type of annuity from another?
1) When the Contract is Scheduled. (Immediate and Deferred Annuities)
2) How the Contract's funds are invested. (Fixed, Indexed, and Variable Annuities)
What are Immediate Annuities often referred to as?
SPIAs - Single Premium Immediate Annuities
What type of income streams can SPIAs generate?
- Fixed and unchanging
-Variably (which can increase or decrease according to the performance of underlying
investment accounts)
Fixed or Variable, the duration of the immediate annuity income stream is guaranteed by the
insurer.
What type of Annuity is designed to accumulate funds for the long-term?
Deferred Annuities
The period during which funds are deposited into the contract and are credited with a certain
rate of interest earnings or grow in relation to the performance of the investments in which
they are deposited is known as what stage?
Accumulation Stage.
