• Over the 15 years that she owned her nonqualified variable annuity, Kate invested a total of $25,000 into the contract. At the age of 70, she annuitized the contract's full $50,000 value under a straight life option. According to IRS life expectancy tables, Kate is expected to live 16 years. During the first year of annuitization, Kate received $4,500. How much of that income is taxable? (Search Chapter 5)
  • a. $0
  • b. $1,563
  • c. $2,937
  • d. $4,500
• 32. Which of the following correctly describes the basic income tax treatment of nonqualified annuities? (Search Chapter 5)
  • a. Contract principal is not subject to taxation; interest earnings are subject to taxation.
  • b. Contract principal is subject to taxation; interest earnings are not subject to taxation.
  • c. Neither contract principal nor interest earnings are subject to taxation.
  • d. Both contract principal and interest earnings are subject to taxation.
• 33. To which producer would the NAIC annuity suitability requirements apply? (Search Chapter 6)
  • a. Trudy, who sells only fixed annuities
  • b. Bart, who sells both fixed and indexed annuities
  • c. Gayle, who sells indexed and variable annuities
  • d. Trudy, Bart, and Gayle
• 34. Which of the following producers is likely violating annuity suitability standards? (Search Chapter 6)
  • a. Anna recommends the purchase of a fixed annuity based on information she obtained through fact-finding.
  • b. Carl makes the same product recommendation to every annuity prospect.
  • c. David recommends a product based in part on the client's age.
  • d. Brent bases his recommendation on the customer's needs and circumstances.
• 35. Before Andrew can recommend the purchase of a deferred variable annuity to his client, Mary, he must have reasonable basis to believe all of the following EXCEPT: (Search Chapter 6)
  • a. Mary has been informed of the various features of variable annuities in general.
  • b. Mary would benefit from at least some of the unique insurance features of the annuity.
  • c. Mary will realize a gain in contract values matching the illustrated returns Andrew presented prior to the sale.
  • d. The recommended annuity contract is suitable for Mary based on information Andrew obtained from her during a data-gathering inquiry.
• 36. With respect to the marketing and selling of annuities to seniors, which of the following statements is true? (Search Chapter 6)
  • a. Producers have the duty to be alert to prospects and clients who may lack the ability to make informed decisions due to diminished capacity.
  • b. Annuities are never suitable products for seniors.
  • c. Producers must obtain a power of attorney before they can sell a product to anyone older than 70.
  • d. Producers cannot subject a senior prospect or client to a suitability assessment that is more detailed or rigorous than what would apply to any prospect or client.
• 37. Randy is a producer who is licensed in a state that has enacted the NAIC Suitability in Annuity Transactions Model Regulation. For the sale of which of the following products must Randy abide by the compliance requirements set forth in this model? (Search Chapter 6)
  • a. only traditional fixed annuities
  • b. only indexed annuities
  • c. only variable annuities
  • d. fixed, indexed and variable annuities
• 38. On what primary basis should Producer Lester determine the suitability of an annuity product he recommends to any of his clients? (Search Chapter 6)
  • a. the facts disclosed by the client
  • b. the advice of his more experienced colleagues
  • c. the number and profile of other buyers who have purchased the product
  • d. the commission he will make on the product
• 39. Which of the following best defines the purpose of the NAIC annuity suitability model regulation? (Search Chapter 6)
  • a. ". . . so that the insurance needs and financial objectives of consumers are appropriately addressed"
  • b. ". . . so that class-action suits against authorized insurers and licensed producers are avoided"
  • c. ". . . so that licensed producers are better educated on the benefits and drawbacks of annuity products"
  • d. ". . . so that insurers maintain unencumbered assets equal to the insurer's reserve liabilities"
• 40. Which of the following best describes the stated purpose of the NAIC Annuity Suitability Model Regulation? (Search Chapter 6)
  • a. to promote annuity transactions that minimize consumer complaints to state insurance regulators
  • b. to promote annuity transactions so that more consumers will purchase annuities
  • c. to promote annuity transactions that reduce the amount of information the consumer needs to be given to make a purchasing decision
  • d. to promote annuity transactions that appropriately address the consumer's insurance needs and financial objectives