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Life and Health Insurance Producer Exam

Annuities: practice questions

Our Life & Health Insurance bank has 17 questions on this topic. Here are 5 of them with answers; the full mock exam draws from every topic, like the real one.

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Question 1

What does a straight life (life only) annuity pay?

  1. Income for the annuitant's life, with nothing left at death
  2. Income to a beneficiary after the annuitant dies
  3. Income for a set number of years, then a refund
  4. A lump sum paid to the annuitant at the end of the term, with no further payments
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A. Income for the annuitant's life, with nothing left at death — It pays the highest income per dollar.

Question 2

What does a life annuity with period certain pay?

  1. Income only after the annuitant has reached age 85
  2. Income for life, but for at least a guaranteed number of years
  3. Income for a fixed number of years only, then nothing more to anyone at all
  4. A lump sum to the annuitant's heirs at death
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B. Income for life, but for at least a guaranteed number of years — If the annuitant dies early, a beneficiary gets the remaining payments.

Question 3

Who is the annuitant?

  1. The insurer that guarantees the contract's interest rate
  2. The person who sells the contract and earns its commission
  3. The person who receives any death benefit from the contract
  4. The person whose life determines the annuity payments
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D. The person whose life determines the annuity payments — The owner and annuitant are often the same person.

Question 4

What tax penalty generally applies to annuity withdrawals of earnings before age 59½?

  1. A 50% additional tax, plus capital gains tax on the whole value
  2. A 25% penalty on the whole account balance
  3. A 10% additional tax, plus ordinary income tax
  4. No penalty, only ordinary income tax applies
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C. A 10% additional tax, plus ordinary income tax — Exceptions include death and disability.

Question 5

What is a surrender charge on an annuity?

  1. A charge for naming a new beneficiary on the contract after the first contract year
  2. A tax penalty for withdrawals made before age 59½
  3. A fee for annuitizing the contract after age 65
  4. A fee for withdrawing money during the early years of the contract
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D. A fee for withdrawing money during the early years of the contract — Surrender charges usually decline over several years.

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