11. All of the following are factors that insurers commonly consider when setting the interest rate at which interest will be credited on their declared-rate annuities EXCEPT: Oa. interest rates being paid on certificates of deposit b. corporate bond spreads c. their index call option budget d. the treasury yield curve 12. George purchased a deferred annuity with a single premium payment of $20,000, and the contract has been credited with $3,000 in interest earnings. If George is age 45 at the time of his $5,000 withdrawal, how much tax penalty, if any, will he probably incur? Oa. No tax penalty applies b. $300 c. $200 d. $500 13. Clara was age 35 when she purchased her deferred annuity. Now, at age 38, she needs to withdraw substantial funds from the contract to meet a financial emergency, but she will likely face adverse consequences for doing so. Which one of the following adverse consequences is she not likely to encounter in making the withdrawal? a. charges imposed by the insurer Ob. minimum withholding requirements imposed by the law c. LIFO income tax treatment d. a 10 percent premature distribution tax penalty unless an exception applies 14. Peter purchased a deferred annuity with a typical surrender charge provision. The charge is 7 percent in the first contract year and declines by 1 percent each year to 0 percent at the end of the seventh contract year. If he fully surrenders his annuity during contract year 4 when his accumulated value is $100,000, and he has a $10,000 gain on the contract, what will his surrender charge be? a. $400 Ob. $3,200 Oc $3,600 Od. $4,000 15. Elmer purchased an annuity that permits him to make premium deposits whenever he wishes and in any amount. What kind of annuity did he buy? a. a single premium qualified annuity Ob. an immediate variable annuity Oc. a flexible premium deferred annuity d. an immediate indexed annuity 16. Three years ago, Sheila purchased a deferred annuity with a $25,000 premium payment. Today her contract is valued at $29,000. Assuming the contract contains a standard surrender-free withdrawal provision, how much can Sheila take from the contract this year without incurring a surrender charge? a so Ob. $2,500 Oc. $2,900 Od $1.000 17. The "first day of the first period for which an amount is received as an annuity" is known as the contract's Oa. liquidation date. b. index date. c. annuity starting date. d. exclusion ratio date. 18. Susan purchased a deferred declared-rate fixed annuity. What types of investments generally support her contract? a. long-term bonds b. index call options c. common stocks d. commodity futures 19. When Barbara retired, her pension plan administrator purchased an annuity under which she immediately began receiving her pension. Which of the following types of contracts did the administrator likely purchase? a. nonqualified flexible premium annuity b. qualified single premium immediate annuity c. deferred annuity Od. two-tiered annuity 20. Ed's indexed annuity uses a point-to-point strategy and has a 75 percent participation rate and a 12 percent cap rate. What interest rate would be used to credit interest on funds in his annuity if the index closing level was 1000 at the beginning of the index term period and 1200 at the end of the period? a. 12 percent b. 15 percent c. 20 percent Od. 25 percent 21. Peter's indexed annuity uses a point-to-point index strategy, has a 100 percent participation rate, no cap rate, and a 2 percent spread. What interest rate would be used to credit interest on his annuity funds if the index closing level at the beginning of the index term period was 1000, and the level at the end of the period was 1200? Oa: 12 percent Ob. 20 percent Oc.8 percent Od 18 percent 22. Shirley's indexed annuity's external index uses a point-to-point strategy. What interest rate would be applied to the funds in her contract if the index closing level at the starting point of the index term period was 1000, the ending point was 1200, the participation rate was 100 percent, and the cap rate was 18 percent? Oa. 2 percent Ob. 12 percent c. 18 percent Od. 20 percent 23. What investment is purchased by insurers to enable them to credit index interest in equity indexed products? Oa long-term bonds and mortgages Ob. common stock Oc. index call options Od interest rate futures 24. George is about to buy a variable annuity but is concerned about the investment risk he would bear. Which of the following would guarantee him that he would be able to withdraw funds from the annuity equal to his premiums regardless of the separate account performance? a. a crisis waiver rider b. an accelerated death benefit rider c. a guaranteed minimum withdrawal benefit rider d. a fixed account rider 25. What is the result for the indexed annuity contract owner of the insurer using a monthly averaging strategy? a. The change in the index closing levels will be higher than if a different strategy were used. Ob. The potentially wide swings in the index closing level are smoothed out. Oc. The change in the index closing levels will be lower than if a different strategy were used. Od. The participation rate is normally increased. 26. Bob's indexed annuity uses a point-to-point strategy and has a 75 percent participation rate but no cap rate. What interest rate would be used to credit interest on funds in his annuity if the index closing level was 1000 at the beginning of the index term period and 1200 at the end of the period? Oa 12 percent Ob 15 percent c. 20 percent Od. 25 percent 27. Carla's indexed annuity's external index uses a point-to-point strategy. What interest rate would be applied to the funds in her contract if the index closing level at the starting point of the index term period was 1000, the ending point was 1200, the participation rate was 80 percent, and the cap rate was 18 percent? Oa. 2 percent b. 16 percent c. 18 percent Od. 20 percent 28. Joan's indexed annuity offers her several interest-crediting strategies and permits her to change from one strategy to another. When is she likely to have the right to re-allocate her funds? a. each month b. on the anniversary on which the current strategy ends c. every year d. whenever she chooses 29. Helen bought an installment refund life annuity for $100,000 under which she received an annual periodic payment of $10,000. If her life expectancy was 15 years at the time she bought the contract, but she lived for 30 years, when would her periodic payments end? a. at the end of her life b. at the end of 10 years c. at the end of 5 years d. at the end of 15 years 30. Cora is a widow and has no relatives to whom she wishes to transfer assets at her death. She wants to invest some of her assets into an annuity that will give her the largest periodic payment and will continue for her entire life. Which of the following should she consider? a. a joint and survivor annuity b. a life annuity with refund period Oc. a straight life annuity d. a life annuity with period certain 31. Bill annuitized the $100,000 accumulated value in his deferred annuity and died after receiving only one periodic payment of $3,000. When no further payments were due to anyone, what kind of settlement option did his heirs found that he had chosen? a. temporary annuity Ob. straight life annuity Oc. refund annuity Od. joint and survivor annuity 32. Ellen purchased a life annuity with a 10-year period certain and lived for 30 years. If Ellen's life expectancy was 20 years at the time she bought the annuity, when would her periodic payments cease? Oa, at the end of her life i b. at the end of 10 years Oc. at the end of 20 years d. when the amount placed under the annuity had been exhausted 33. At the age of 65, Al, a widower, decides to annuitize his deferred annuity. He wants income for life, in the largest amounts possible. Which of the following settlement options should he elect to meet these two objectives? Oa. a joint and survivor payout Ob. a life with 20-year certain payout Oca 20-year term certain payout Od. a straight life payout 34. Shirley bought a nonqualified immediate straight life annuity for $100,000 and received $14,000 annually, only $4,000 of which was includible in her income under the exclusion ratio. Which of the following would occur at the end of ten years? Oa. Periodic payments would end. Ob. All further periodic payments would be fully taxable. Oc. The taxable portion of her periodic payments would receive capital gains tax treatment. Od. Periodic payments would increase to account for a change in tax treatment. 35. Susan bought an installment refund life annuity for $100,000 under which she received an annual periodic payment of $10,000. At the time she bought the annuity, her life expectancy was 15 years, but she lived for 30 years. What, if anything, is payable to her beneficiary at her death? Oa. $100,000 Ob. $10,000 Oc. $25,000 Od so 36. Audrey purchased an immediate life annuity for $100,000 with a 10-year period certain and died after receiving 12 monthly periodic payments. What, if anything, is payable to her beneficiary? Oa. Nothing is payable, because the annuity was a life annuity. Ob. $90.000 is payable. Oc. Payments of the same amount continue for nine years to the beneficiary. Od Payments continue for ten more years. 37. Frank bought a nonqualified temporary variable annuity for $100,000, providing periodic payments for ten years. If payments are $15,000 annually, how much of each payment is excluded from his income for tax purposes? a. $0 Ob. $15,000 c. $5,000 Od. $10,000 38. Bruce is terminally ill and has been certified as having a life expectancy of 24 months. He received $100,000 in accelerated death benefits under a policy for which he paid $10,000 in aggregate premiums. How much, if any, of the accelerated death benefit must he include in his income? a. $100,000 b. $10,000 Oc. $90,000 Od. $0 39. Carl owns an indexed life insurance policy that allows him to re-allocate funds from an index strategy to a fixed interest strategy. Fearing that the economy is headed downwards, he wants to transfer the funds as soon as he can. When is he likely to be able to make such a transfer? a. Transfers from one strategy to another can normally be made at any time. b. on any policy anniversary c. on any monthly deduction day d. at the end of an index term period 40. Bob is interested in buying a life insurance policy whose cash value growth is based on the positive changes in an external index. However, he doesn't want to be exposed to investment risk. Which of the following would meet those objectives? a. variable life insurance b. participating whole life insurance c. indexed life insurance d. term life insurance 41. Which of the following is a discrete and identifiable sum that may be moved to the index or fixed interest strategy? Oa. contribution window. Ob. spread c. bucket d. index 42. Gina purchased an indexed life insurance policy several years ago and wants to withdraw funds from its cash value. The cash value is $50,000, and her total premiums were $45,000. Assuming she withdraws $8,000 and the policy is not a modified endowment contract, how much, if any, of the withdrawal must she include in her income for tax purposes? a. $0 Ob. $3,000 c. $5,000 d. $8,000 43. Barbara bought an indexed life insurance policy. Where are her premiums typically deposited when received by the insurer? a. in a daily interest account b. in an index account Oc. in a loan account Od. in a separate account 44. Joan's indexed universal life insurance policy contains a no-lapse guarantee rider. Which of the following must she do in order to keep the rider in force? a. maintain a cash value at least equal to one year of monthly deductions Ob. pay scheduled premiums when due Oc. meet a specified cash value allocation Od. allocate all premiums to the fixed interest strategy 45. Phil's life insurance policy has a cash value of $10,000 and a cost basis of $6,000. If he takes a $9,000 policy loan from the policy, how much, if any, of the loan must he immediately include in his income for tax purposes? O a. so Ob. $3,000 Oc. $6,000 Od. $9,000 46. Federal law defines a terminally ill individual as one who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within how many months following certification? Oa. 6 Ob. 10 Oc 24 Od. 36 47. What is the intended effect of a maturity date extension rider on a life insurance policy? a. to delay the taxability of the death benefit paid to the policyowner b. to lower the cost of insurance deductions c. to lower the cost of the policy's settlement options d. to cause the policy to cover a different insured 48. Audrey wants to purchase an annuity in order to enjoy tax deferral. What should she do before purchasing an annuity solely for this purpose? a. seek tax advice from her agent b. take advantage of any tax-favored retirement plans for which she is eligible c. contact the state insurance department d. incorporate 49. Which of the following methods generally results in the most realistic determination of a life insurance need? a. needs-based method b. human life value method c. ten times the insured's income method d. fifteen times the insured's income method 50. Sheila, a Megamutual producer, strongly suspects that her 68-year-old life insurance prospect may have a cognitive impairment. Which of the following is appropriate? a. make the sale quickly before the impairment worsens b. refuse to do business with the prospect c. ask the beneficiary of any proposed coverage to sit in on the meetings with the prospect d. request that someone without any vested interest attend any further meetings with the prospect