Chapter 7 Assignment

FIN 604 OL1

8/7/2018

Multiple choice:
1. A
2. C
3. A
4. B
5.D

1.What major risk to retirement income do annuities mitigate? Retirement life expectancy -
the period between retirement and death - this period has increased due to: earlier retirement
and extended life expectancy - inflation - the increase in the general price level of goods and
services

3. what is the Impact of inflation on retirement income - The future value cost has increased,
the purchasing power of $1,000 has increased.

6. Define an Annuity - Contract that is designed to provide a specified income that is payable at
stated intervals for a specified period of time.

7.List the parties to an annuity - Annuitant, beneficiary, owner, insurance company.

9. What is the difference between an immediate annuity and a deferred annuity - An

immediate annuity starts to pay out as soon as the annuity is purchased and a deferred annuity
is paid out at a later designated time such as 10 or 20 years.

11. Identify the different types of annuity benefit options - Single life, joint, term certain,
options. Single life annuity is an annuity that only provides payments to one person. Funds are
paid for a single lifetime, and can be combined with other payout option. Joint life: funds are
paid over tow lives, including 100%, 75%, 66%, 50% joint & survivor. Term certain: funds are
paid over a specified period of time. Option: single life and joint life options can be combines
with a term certain or a premium refund.

16. what are the common fees and charges associated with variable annuities - Mortality and
expense risk charges, administrative and distribution fees, annual fee, sub account fee and
expenses, surrender charges

19. How are annuities subject to income tax - Distributions are not made to the annuitant until
the contract is annuitized, distributions taken from an annuity before annuitizing, it must be
included in the taxpayer’s gross income until all of the gain in the contract has been distributed,
further distributions are treated as tax-free returns of investment dollars, annuity contracts
follow a LIFO approach to income reporting, annuities issued prior to August 14, 192 receive
FIFO treatment