Test Your Annuity IQ


Annuity Quiz We put this quiz together from the California State insurance licensing test. These are the types of questions your annuity agent may or may not have been asked to qualify them to sell Annuities. This may be all they know about these complex products! The answers are at the bottom.

  • Most Americans use annuities to give them __________?
    • Stream of retirement income
    • Tax deduction
    • Emergency fund
    • Income in the event of disability
  • If the participation rate is 70% and the index-linked interest calculated in an Equity Indexed Annuity policy is 6%, how much will be credited to the policy?
    • 4.4%
    • 2.4%
    • 4.2%
    • 6%
  • Unlike other savings vehicles, the growth inside an annuity is __________?
    • Tax creditable
    • Tax deterred
    • Tax deductible
    • Tax deferred
  • The period of time during which there is a build-up in an annuity of interest is call the __________?
    • Gross up phase
    • Deferral phase
    • Accumulation phase
    • Interest phase
  • Periodic payments that begin within one year after purchase are characteristic of a(n) _______________ annuity?
    • Imediate
    • Deferred
    • Tax sheltered
    • Qualified
  • Deferred annuities provide a great deal of flexibility in the __________ and __________ of payout benefits?
    • Timing and type
    • Amount and type
    • Timing and amounts
    • Growth and determination
  • A variable annuity fluctuates in accordance with the __________ of its investments?
    • Origin
    • Performance
    • Diversification
    • Expense loads
  • All of the following are phases of an annuity EXCEPT?
    • Accumulation
    • Contribution
    • Distribution
    • Interpretation
  • Split annuity combines a _______________?
    • Fixed deferred and an immediate annuity
    • Variable and fixed annuity
    • Term life and fixed annuity
    • Endowment and immediate annuity
  • Premiums in fixed annuities are either__________ or __________?
    • High or low
    • Fixed or variable
    • Single or flexible
    • Taxable or deductible
  • IRS specifies age __________ as the maximum payout age for fixed annuities?
    • 59 ½
    • 70 ½
    • 100
    • no specific age
  • Generally, companies charge a __________ surrender fee?
    • Level
    • Increasing
    • Decreasing
    • Fluctuating
  • If an annuitant dies or becomes disable, most companies __________ the surrender charges?
    • Increase
    • Average
    • Freeze
    • Waive
  • A “1035 Exchange” involves the exchange of all the following EXCEPT?
    • Life insurance policy
    • Endowment
    • Disability policy
    • Annuity contract
  • IRS imposes a __________% penalty on withdrawals prior to age 59 ½?
    • 5
    • 10
    • 15
    • 20
  • Companies allow for an annuitant to “bail out” if their interest rate is __________ a pre-determined level?
    • More than
    • Less than
    • Unchanged from
    • One half of
  • An annuity that has all the guarantees of an annuity contract plus the potential for stock market returns is a(n) __________ annuity?
    • Interest sensitive
    • Bond index
    • Equity index
    • Market specific
  • Guaranteed __________ and guaranteed __________ options are characteristic of a fixed annuity?
    • Interest / income
    • Rates / options
    • Fees / income
    • Interest / investment
  • A fixed tax deferred annuity is safe due to __________?
    • Flexibility
    • Dollar cost averaging
    • Diversification
    • Reserves
  • Principal and interest can continue to grow until one becomes age __________?
    • 85
    • 90
    • 95
    • 100
  • One sum of $’s contributed to an annuity and left to accumulate is what type of annuity?
    • Single premium deferred
    • Single premium immediate
    • Single premium flexible
    • Single premium accumulator
  • Two types of single premium annuities are __________ and __________?
    • Deferred / indexed
    • Deferred / flexible
    • Immediate / indexed
    • Immediate / deferred
  • Payments stop at the annuitant’s death in a __________ settlement?
    • Joint and survivor
    • Period certain
    • Joint life
    • Life only
  • An interest rate that is higher in the first year and is guaranteed for one year is a(n) __________ rate?
    • Index
    • Bonus
    • Variable
    • Fixed
  • Almost all annuities allow for a withdrawal of __________ of their account value before a surrender charge is applied?
    • 5
    • 10
    • 15
    • 25

Here are the Answers to the Quiz


Tax Deferred Annuities


A Tax Deferred Annuity is one of few retirement investments that offer tax deferred compounding of investment gains.  CD’s and Treasury Bonds are do not- they are taxed every year.

Tax Deferred Annuities offer these advantages, and are popular savings and investment plans for individuals who want to save on a taxes for many years. With a tax deferred annuity, your investment grows and compounds.   Unlike a CD, your earnings are not taxed each year, leaving you with more capital, and greater earnings, year after year. Investors fund tax deferred annuities with a single lump sum (known as “single premium”), or installments (known as “flexible premium”).

The tax deferred annuity is safe, as an approved life insurance company is required to hold reserves at all times equal to the withdrawal value of the annuity contract. In addition, state law requires certain levels of surplus capital also be available for increased protection. For many, a tax deferred annuity makes up the cornerstone of a safety-first retirement plan. For individuals in retirement, the tax deferred annuity is useful to defer taxes prior to needing the dedicated stream of lifetime retirement income.

The Three Main Tax Deferred Annuities:

Fixed Annuity

Fixed Index Annuity

Secondary Market Annuities

For the fixed and fixed indexed annuity, your principal and a minimum rate of interest are guaranteed by the full faith and credit of the company issuing the annuity contract.   These annuities provide a higher rate of return over traditional CD and savings plan products, and come with many options you can customize depending on your retirement objectives and financial plans.

Secondary Market Annuities offer tax deferred, compounding yields higher than nearly all other types of annuities.  Like a fixed annuity, Secondary Market Annuities have a guaranteed fixed yield and term.  With deferred income SMA cases, income earned is only realized for tax purposes when it is paid to you.  Therefore, your purchase price accrues, compounds, and grows, all tax deferred.

There are many benefits to tax deferred annuities that we explore in detail throughout this site.  Be sure to sign up to get our Retirement Income The Right Way Report and learn more about the benefits of tax deferred annuities.