A typical variable annuity offers three basic features not commonly found in mutual funds:
tax-deferred treatment of earnings
; a death benefit; and. annuity payout options that can provide guaranteed income for life.
Which of the following is characteristic of a variable annuity?
A typical variable annuity offers three basic features not commonly found in mutual funds:
tax-deferred treatment of earnings
; a death benefit; and. annuity payout options that can provide guaranteed income for life.
What is true about a variable annuity?
a variable annuity
guarantees an earnings rate of return
. a variable annuity does not guarantee an earnings rate of return. a variable annuity guarantees payments for life. a variable annuity does not guarantee payments for life.
Which of the following annuity features makes it a suitable source of retirement income?
Variable annuities offer tax-deferred growth
and are suitable for achieving supplemental retirement income. Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. None of the other investments listed here offer tax-deferred growth. Reference: 12.3.
What is annual reset quizlet?
Annual Reset Method.
The index-linked interest crediting rate is determined each year by comparing the index value at the end of the contract year with the index value at the beginning of the year of the contract year
. Interest is added to the annuity each year during the term. You just studied 41 terms!
What are the advantages and disadvantages of variable annuities?
Unlimited contributions
: Non-qualified variable annuities have no contribution limits, unlike IRAs and qualified plans. Downside Protection: Variable annuities have living benefits that protect retirement assets from unfavorable markets. Living benefit features have additional charges.
What are the risks associated with variable annuities?
Variable annuities involve
investment risks
just like mutual funds do. If the investment choices you selected for the variable annuity perform poorly, you could lose money. Contract fees may go towards your financial professional’s compensation.
How do you explain a variable annuity?
A variable annuity is a tax-deferred retirement vehicle that allows you to choose from a selection of investments, and then pays you a level of income in retirement that is determined by
the performance of the investments you choose
. Compare that to a fixed annuity, which provides a guaranteed payout.
Why are variable annuities bad?
Fourth, variable annuities
lack the liquidity of mutual fund investments
. Because of high sales commissions and the insurance component, most VAs have a surrender charge to exit the VA for a period of time ranging from a few years to a decade after purchasing it.
How does variable annuity work?
A variable annuity is part investment, part insurance. You put your money in mutual-fund-like accounts, and
gains are tax-deferred until you withdraw the money
. Withdrawals are taxed as ordinary income rather than at lower capital-gains tax rates, just like payouts from traditional IRAs.
Which are the main features of an annuity?
- Tax deferral on investment earnings. …
- Protection from creditors. …
- An array of investment options. …
- Taxfree transfers among investment options. …
- Lifetime income. …
- Benefits to heirs.
What is the first step in illustrating an annuity problem?
Annuity Problem.
The first step is
to convert the annual discount rate to a semiannual rate
: The above formula can be solved algebraically to get r
semiannual
=3.92%.
What is the main purpose of an annuity?
An annuity is a long-term investment that is issued by an insurance company and is
designed to help protect you from the risk of outliving your income
. Through annuitization, your purchase payments (what you contribute) are converted into periodic payments that can last for life.
Which of the following is considered an advantage of annuitization?
Which of the following is considered an advantage of annuitization?
It guarantees income that will last for the client’s lifetime
. Payments under a variable annuity could be reduced if there is a declining market.
Which two terms are associated directly with the way an annuity is funded?
Which two terms are associated directly with the way an annuity is funded?
Single payment or periodic payments
. Annuities are characterized by how they can be paid for: Either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time.
What are the two components of a universal policy?
Universal life insurance has two components:
death benefit coverage and an accumulating cash value
. When you pay your monthly premium, it’s split between the two parts of your policy, with a portion going to each.
