Investments Mini-Quiz: Annuities

  1. When a $100,000 single premium is the purchase price of the annuity, the amount of the annuitant’s monthly benefit check payable is a function of all the following factors EXCEPT:
    1. The age of the annuitant when payout begins
    2. The marginal income tax bracket of the annuitant
    3. The insurance company’s projection of investment income during both the deferral period and the payout period
    4. The sex of the annuitant

  2. All the following statements describe the operation of a life annuity EXCEPT:
    1. The emphasis is on liquidation of a fund.
    2. The older the annuitant is when he receives his first annuity payment, the greater will be the amount of each payment.
    3. Because of the interest factor, an annuitant is assured of receiving back more than he paid in.
    4. The annuitant is assured that he cannot outlive the length of time of the annuity payments.
    5. A man will receive larger annuity payments per $1,000 premium than a woman the same age.

  3. Which of the following statements indicates the rationale of the variable annuity?
    1. Common stock prices can be expected to increase a certain percent each year.
    2. Common stock dividends and market prices can be expected over the long term to vary approximately the same as changes in the cost of living.
    3. Conventional annuities are now obsolete because of the built-in inflationary factors.
    4. The annuitant is assured that he cannot outlive the length of time of the annuity payments.

  4. All the following statements concerning the variable annuity are correct EXCEPT:
    1. During the accumulation period, the premiums are invested primarily in common stocks.
    2. A $100 a month premium will buy more accumulation units during a bull market than during a bear market.
    3. The annuitant receives a fixed number of annuity units each month during the payout period.
    4. The annuitant assumes the investment risk. Under a straight life variable annuity, the annuitant is guaranteed that he won’t outlive his income in terms of annuity units.

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