MICHIGAN VARIABLE ANNUITIES EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
Other names for pure life settlement - Answers -life income
-life annuity
What annuity settlement option produces the largest monthly income guaranteed for life? - Answers
pure life settlement option
second life contingency option - Answers life with period certain (ie. 10 years) so even if the annuitant
does or does not die within that timeframe, insurer guarantees to continue the annuity payments to a
named beneficiary for the balance of the certain period.
third life contingency option - Answers life with refund; insurer guarantees payments for life, but if
the annuitant dies before the payments received equal the annuitant's basis (the total amount paid
for the annuity), then the insurer agrees to pay out the remaining basis to a named beneficiary
which annuity settlement option provides the largest monthly income payment?
a. life with period certain
b. pure life option
c. life with refund - Answers b
how long is the free-look period for Michigan annuity contracts - Answers 10 calendar days after
purchase date (eligible for full refund including premium paid)
accumulation period/units - Answers a $5,000 prem deposit in a VA in which the units are valued at
$5, would purchase 1,000 accumulation units. New prem pmts change the number of accumulation
units in a purchaser's account, and market fluctuations change each unit's value, so remember that
both the number and value of accumulation units change
annuity period/units - Answers when annuitized, accumulation units are converted to a set number of
annuity units; this number becomes one of the factors used to calculate the payout each month
during the annuity phase (once the # of annuity units is chosen, it will not change, but the value of
each unit change)
Assumed Interest Rate (AIR) - Answers arbitrary rate of return set by the insurer for any separate
account they establish; VA owner ust experience a separate account net investment rate of return
that exceeds the AIR in order for those product values to go up
Applying AIR to variable life - Answers applies to the variable death benefit, but not var. cash value
(only a separate account return above the AIR would increase the variable policy death benefit)
Applying AIR to variable annuity - Answers applies to the variable annuity unit value and any payouts,
but not o the variable accumulation value (only a separate account return above the AIR would
increase the variable annuity unit values and pmts)
Combination Annuities - Answers Combo offers features of fixed and variable contracts
-Fixed portion offers guaranteed rate
-Variable portion tries to achieve higher rate of return
-$ in fixed portion goes to general account for conservative investment
-$ in variable portion goes to separate account for stocks, bond, mutual funds
-Reps must have securities and insurance licenses
Guaranteed living benefits (GLB) - Answers Accumulation, income, and withdrawal guarantee features
of annuities; attractive to older and conservative consumers
guaranteed minimum account value (GMAV) - Answers variable annuity guaranteed life benefit that
ensures the contract's account value will be the greater of the premiums paid or the actual account
value after a specified period of time, such as 8 or 10 years
guaranteed minimum income benefit - Answers variable annuity guaranteed life benefit that ensures
a minimum amount will be available to convert to annuitized income at rate specified in the contract
guaranteed minimum income payments - Answers ensures that each annuitized income pmt the
annuitant receives will be no less than a specified percentage of the first payment (annuitization is
obviously required to realize this benefit)
Guaranteed Minimum Withdrawal Benefit (GMWB) - Answers A variable annuity rider that
guarantees that the owner can withdraw a minimum amount annually without a surrender charge.
Annual withdrawals are usually limited to a specified percentage, such as 5 to 10 percent, of total
premiums paid.
guaranteed death benefit - Answers protects the principal against loss due to market declines; assures
contact owner that his/her beneficiaries will receive at least the amount originally invested in the
, annuity if death occurs before the contract's maturity date (standard death benefit payable is usual
greater of 1) the amount of prems paid, less any withdrawls; or 2) the contract's accumulated value)
Are personal life insurance dividends taxable? - Answers No, but if you decide to keep the dividends in
the account to earn interest, interest earned is taxable and not tax-deferred
When a life insurance policy is surrendered for its cash value, what part is taxable? - Answers the gain
(cash value minus the policy's cost basis)
If a withdrawal is for $12,000 and the policy's cost basis is $10,000, how much is taxable? - Answers
$2,000
if the prems paid for a policy totaled $5,000 and a $4,000 withdrawal was taken, what would be the
policy's cost basis? - Answers $1,000
if a life insurance policy has been sold (or _____-__-_____) to another party by the policy owner, the
death benefit is taxed like a full surrender (any gain minus the cost basis is taxable as income) -
Answers transfer-for-value (exceptions: collateral assignments, transfer from 3rd party to the insured,
viatical settlements, and business partners)
exclusion ratio - Answers method of determining which part of an annuity payment is taxable, and
which part represents the tax-free return of the annuitant's after-tax cost basis.
annuity's cost basis/total expected return
what is the penalty tax % for individuals who contribute more to their IRA than they are allowed to
each year? - Answers 6% penalty tax on the excess amount for each year that it stays in their IRA
IRA Rollover Rules (that do not apply to transfers) - Answers 1. The money must be deposited in the
new IRA within 60 days of its receipt by the owner, or any gain becomes taxable.
2. Any potentially taxable amount of the rollover is subject to withholding tax at a rate of 20%.
3. An IRA may be rolled over only once in any 12-month period
Section 1035 Exchanges - Answers deals with life insurance, annuities, endowments, and qualified
long-term care insurance
any of these four can be exchanged for the same type of product (ex. life insurance for life insurance),
but only the following certain exchanges are also allowed:
>life insurance policy for any of the other 3, but not the other way around
>any of the other 3 for a quailfiied long-term care insurance policy, but qual lt care can only be
exchaged for itself
>endowment for annuity, but not other way around
Money Purchase Plan - Answers Defined contribution plan that uses a fixed percentage of employee
earnings to defer compensation. It works well for organizations with relatively stable earnings from
year to year because the percentage is fixed, and, once established, contributions must be made
every year. The contribution limits are the same as for profit-sharing plans.
Section 457 Plans - Answers -deferred compensation plan (yearly deduction for deferred amount)
-for employees of state, political subdivision of state, and any agency of a state
-also allowed for hospitals, charities, unions etc
-NOT allowed for churches
Key Points:
-exempt from ERISA, no NDR
-Tax-exempt organizations: only highly compensated persons
-Governmental: any employee/contractor may participate
-distributions may NOT be rolled into an IRA
-NO 10% early withdrawal penalty
-Can have 457 and 403(b) and make max contr. to both
-Loans only available to government plans, higher restrictions, not required to offer
Accumulation Phase - Answers the period of time by which the owner of the contract pays in to the
annuity; a beneficiary must be named if the policy owner dies during the accumulation phase.
Accumulation Units - Answers premiums an annuitant pays into a variable annuity are credited as
______. At the end of the accumulation period accumulation units are converted to annuity units.
administration charge - Answers under an insurance or annuity contract, the charge the insurance
company makes to compensate for maintaining records, accounting and reports generation
Other names for pure life settlement - Answers -life income
-life annuity
What annuity settlement option produces the largest monthly income guaranteed for life? - Answers
pure life settlement option
second life contingency option - Answers life with period certain (ie. 10 years) so even if the annuitant
does or does not die within that timeframe, insurer guarantees to continue the annuity payments to a
named beneficiary for the balance of the certain period.
third life contingency option - Answers life with refund; insurer guarantees payments for life, but if
the annuitant dies before the payments received equal the annuitant's basis (the total amount paid
for the annuity), then the insurer agrees to pay out the remaining basis to a named beneficiary
which annuity settlement option provides the largest monthly income payment?
a. life with period certain
b. pure life option
c. life with refund - Answers b
how long is the free-look period for Michigan annuity contracts - Answers 10 calendar days after
purchase date (eligible for full refund including premium paid)
accumulation period/units - Answers a $5,000 prem deposit in a VA in which the units are valued at
$5, would purchase 1,000 accumulation units. New prem pmts change the number of accumulation
units in a purchaser's account, and market fluctuations change each unit's value, so remember that
both the number and value of accumulation units change
annuity period/units - Answers when annuitized, accumulation units are converted to a set number of
annuity units; this number becomes one of the factors used to calculate the payout each month
during the annuity phase (once the # of annuity units is chosen, it will not change, but the value of
each unit change)
Assumed Interest Rate (AIR) - Answers arbitrary rate of return set by the insurer for any separate
account they establish; VA owner ust experience a separate account net investment rate of return
that exceeds the AIR in order for those product values to go up
Applying AIR to variable life - Answers applies to the variable death benefit, but not var. cash value
(only a separate account return above the AIR would increase the variable policy death benefit)
Applying AIR to variable annuity - Answers applies to the variable annuity unit value and any payouts,
but not o the variable accumulation value (only a separate account return above the AIR would
increase the variable annuity unit values and pmts)
Combination Annuities - Answers Combo offers features of fixed and variable contracts
-Fixed portion offers guaranteed rate
-Variable portion tries to achieve higher rate of return
-$ in fixed portion goes to general account for conservative investment
-$ in variable portion goes to separate account for stocks, bond, mutual funds
-Reps must have securities and insurance licenses
Guaranteed living benefits (GLB) - Answers Accumulation, income, and withdrawal guarantee features
of annuities; attractive to older and conservative consumers
guaranteed minimum account value (GMAV) - Answers variable annuity guaranteed life benefit that
ensures the contract's account value will be the greater of the premiums paid or the actual account
value after a specified period of time, such as 8 or 10 years
guaranteed minimum income benefit - Answers variable annuity guaranteed life benefit that ensures
a minimum amount will be available to convert to annuitized income at rate specified in the contract
guaranteed minimum income payments - Answers ensures that each annuitized income pmt the
annuitant receives will be no less than a specified percentage of the first payment (annuitization is
obviously required to realize this benefit)
Guaranteed Minimum Withdrawal Benefit (GMWB) - Answers A variable annuity rider that
guarantees that the owner can withdraw a minimum amount annually without a surrender charge.
Annual withdrawals are usually limited to a specified percentage, such as 5 to 10 percent, of total
premiums paid.
guaranteed death benefit - Answers protects the principal against loss due to market declines; assures
contact owner that his/her beneficiaries will receive at least the amount originally invested in the
, annuity if death occurs before the contract's maturity date (standard death benefit payable is usual
greater of 1) the amount of prems paid, less any withdrawls; or 2) the contract's accumulated value)
Are personal life insurance dividends taxable? - Answers No, but if you decide to keep the dividends in
the account to earn interest, interest earned is taxable and not tax-deferred
When a life insurance policy is surrendered for its cash value, what part is taxable? - Answers the gain
(cash value minus the policy's cost basis)
If a withdrawal is for $12,000 and the policy's cost basis is $10,000, how much is taxable? - Answers
$2,000
if the prems paid for a policy totaled $5,000 and a $4,000 withdrawal was taken, what would be the
policy's cost basis? - Answers $1,000
if a life insurance policy has been sold (or _____-__-_____) to another party by the policy owner, the
death benefit is taxed like a full surrender (any gain minus the cost basis is taxable as income) -
Answers transfer-for-value (exceptions: collateral assignments, transfer from 3rd party to the insured,
viatical settlements, and business partners)
exclusion ratio - Answers method of determining which part of an annuity payment is taxable, and
which part represents the tax-free return of the annuitant's after-tax cost basis.
annuity's cost basis/total expected return
what is the penalty tax % for individuals who contribute more to their IRA than they are allowed to
each year? - Answers 6% penalty tax on the excess amount for each year that it stays in their IRA
IRA Rollover Rules (that do not apply to transfers) - Answers 1. The money must be deposited in the
new IRA within 60 days of its receipt by the owner, or any gain becomes taxable.
2. Any potentially taxable amount of the rollover is subject to withholding tax at a rate of 20%.
3. An IRA may be rolled over only once in any 12-month period
Section 1035 Exchanges - Answers deals with life insurance, annuities, endowments, and qualified
long-term care insurance
any of these four can be exchanged for the same type of product (ex. life insurance for life insurance),
but only the following certain exchanges are also allowed:
>life insurance policy for any of the other 3, but not the other way around
>any of the other 3 for a quailfiied long-term care insurance policy, but qual lt care can only be
exchaged for itself
>endowment for annuity, but not other way around
Money Purchase Plan - Answers Defined contribution plan that uses a fixed percentage of employee
earnings to defer compensation. It works well for organizations with relatively stable earnings from
year to year because the percentage is fixed, and, once established, contributions must be made
every year. The contribution limits are the same as for profit-sharing plans.
Section 457 Plans - Answers -deferred compensation plan (yearly deduction for deferred amount)
-for employees of state, political subdivision of state, and any agency of a state
-also allowed for hospitals, charities, unions etc
-NOT allowed for churches
Key Points:
-exempt from ERISA, no NDR
-Tax-exempt organizations: only highly compensated persons
-Governmental: any employee/contractor may participate
-distributions may NOT be rolled into an IRA
-NO 10% early withdrawal penalty
-Can have 457 and 403(b) and make max contr. to both
-Loans only available to government plans, higher restrictions, not required to offer
Accumulation Phase - Answers the period of time by which the owner of the contract pays in to the
annuity; a beneficiary must be named if the policy owner dies during the accumulation phase.
Accumulation Units - Answers premiums an annuitant pays into a variable annuity are credited as
______. At the end of the accumulation period accumulation units are converted to annuity units.
administration charge - Answers under an insurance or annuity contract, the charge the insurance
company makes to compensate for maintaining records, accounting and reports generation
