Michigan Variable Annuities Exam fully solved
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1. What is a variable annuity?
o A) A fixed income investment
o B) An investment product that offers variable returns based on the
performance of underlying assets
o C) A guaranteed return product
o D) A type o...
1. What is a variable annuity?
o A) A fixed income investment
o B) An investment product that offers variable returns based on the
performance of underlying assets
o C) A guaranteed return product
o D) A type of life insurance
Answer: B) An investment product that offers variable returns based
on the performance of underlying assets
Rationale: Variable annuities allow policyholders to invest in various
investment options, and returns fluctuate based on market
performance.
2. What are the primary components of a variable annuity?
o A) Premiums and death benefits
o B) Accumulation phase and payout phase
o C) Fixed interest rates
o D) Tax advantages only
Answer: B) Accumulation phase and payout phase
Rationale: Variable annuities consist of an accumulation phase,
where funds grow, and a payout phase, where income is distributed to
the annuitant.
3. What is the main purpose of an annuity?
o A) To provide a temporary income stream
o B) To fund a specific project
o C) To provide a long-term income stream during retirement
o D) To minimize tax liabilities
Answer: C) To provide a long-term income stream during retirement
Rationale: Annuities are designed primarily to provide a steady
income during retirement, helping individuals manage their finances
in later years.
4. Which of the following is true regarding the accumulation phase of a
variable annuity?
o A) It guarantees a fixed return
o B) It allows investment in various portfolios
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o C) It has no tax advantages
o D) It cannot be changed once selected
Answer: B) It allows investment in various portfolios
Rationale: During the accumulation phase, the investor can choose
different investment options, often including stocks and bonds, which
determine the variable return.
5. What is a "sub-account" in the context of variable annuities?
o A) A separate account for managing taxes
o B) An investment option within a variable annuity
o C) A method of calculating surrender charges
o D) A fixed interest component
Answer: B) An investment option within a variable annuity
Rationale: Sub-accounts are specific investment options offered
within a variable annuity, allowing policyholders to allocate their
premiums across different funds.
6. What is the significance of the "surrender charge" in variable
annuities?
o A) It is a penalty for early withdrawal
o B) It guarantees a return on investment
o C) It applies only during the payout phase
o D) It is a tax-related fee
Answer: A) It is a penalty for early withdrawal
Rationale: Surrender charges are fees imposed when the annuitant
withdraws funds from the annuity before a specified period.
7. What happens to a variable annuity when the annuitant dies during the
accumulation phase?
o A) The contract is voided
o B) The beneficiaries receive the higher of the account value or the
guaranteed minimum death benefit
o C) No benefits are paid
o D) The investment is forfeited to the insurer
Answer: B) The beneficiaries receive the higher of the account value
or the guaranteed minimum death benefit
Rationale: In the event of the annuitant's death, beneficiaries typically
receive either the current account value or a guaranteed death benefit,
whichever is higher.
8. Which of the following is NOT a typical investment option in a variable
annuity?
o A) Money market funds
o B) Mutual funds
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o C) Individual stocks
o D) Real estate properties
Answer: D) Real estate properties
Rationale: Variable annuities typically offer money market funds,
mutual funds, and other pooled investment options but do not directly
include real estate properties.
9. What is the primary tax advantage of a variable annuity?
o A) Contributions are tax-deductible
o B) Earnings grow tax-deferred
o C) Withdrawals are tax-free
o D) Fixed interest rates
Answer: B) Earnings grow tax-deferred
Rationale: Variable annuities allow investment earnings to grow
without being taxed until withdrawal, providing a significant tax
advantage.
10.In which phase of a variable annuity do the annuitants typically begin
receiving payments?
o A) Accumulation phase
o B) Distribution phase
o C) Growth phase
o D) Investment phase
Answer: B) Distribution phase
Rationale: The distribution phase is when annuitants start receiving
periodic payments from the annuity.
11.What is the "net investment return" in a variable annuity?
o A) The return after deducting fees and expenses
o B) The guaranteed interest rate
o C) The total investment amount
o D) The initial premium paid
Answer: A) The return after deducting fees and expenses
Rationale: Net investment return represents the actual return on
investment after accounting for management fees and other expenses.
12.Which of the following best describes the "death benefit" in a variable
annuity?
o A) A benefit paid out only in the payout phase
o B) A guarantee of a minimum payout to beneficiaries
o C) A one-time payment made to the annuitant's estate
o D) A tax-free amount available to the annuitant
Answer: B) A guarantee of a minimum payout to beneficiaries
Rationale: The death benefit ensures that beneficiaries receive a
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