Texas Life & Health Insurance Exam — All Questions
← Back to practice3 questions
During the accumulation phase of a deferred annuity, what is happening?
- a.The insurer is making periodic income payments to the annuitant
- b.The owner is paying money into the contract and it is growing tax-deferred✓
- c.The contract is being surrendered for its cash value
- d.The death benefit is being paid to the beneficiary
The accumulation (pay-in) phase is when the owner contributes premiums and the annuity's value grows on a tax-deferred basis, before income payments begin. Making periodic income payments describes the annuitization (payout or distribution) phase, not accumulation. Surrendering the contract ends it early. Paying a death benefit occurs if the owner/annuitant dies, which is a separate event. An immediate annuity skips accumulation, but a deferred annuity has this pay-in period first.
How does an immediate annuity differ from a deferred annuity?
- a.An immediate annuity begins income payments within about one payment period of purchase, while a deferred annuity delays payments to a future date✓
- b.An immediate annuity can only be funded with monthly premiums
- c.An immediate annuity has no annuitant
- d.An immediate annuity guarantees a higher interest rate than any deferred annuity
An immediate annuity (typically a single-premium immediate annuity, or SPIA) starts income payments within roughly one payment interval of purchase, so it is bought to generate income right away; a deferred annuity postpones the payout phase to a later date, allowing tax-deferred accumulation first. Immediate annuities are funded with a single lump sum, not ongoing monthly premiums, so the second option is wrong. Every annuity has an annuitant (the measuring life), and there is no rule that immediate annuities always credit a higher rate.
An annuitant selects a 'straight life' (life-only) annuity payout option. What is the main trade-off of this choice?
- a.It pays the smallest monthly income but guarantees payments to heirs
- b.It continues payments to a joint annuitant for life
- c.It pays the largest monthly income, but payments stop at the annuitant's death with nothing to heirs✓
- d.It refunds all unused premiums to the estate
A straight life (life-only) option pays income for as long as the annuitant lives and stops at death, with no further payments to a beneficiary; because the insurer has no obligation beyond the annuitant's life, it provides the largest periodic payment of the pure life options. The first option is backwards about both the payment size and heir guarantee. A joint-and-survivor option (not life-only) continues to a second annuitant. Options that refund unused premiums (such as installment or cash refund) or guarantee a period certain provide beneficiary protection but pay less than life-only.