MICHIGAN VARIABLE ANNUITIES EXAM QUESTIONS
& ANSWERS
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
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
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
& ANSWERS
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
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
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
