Life & Health Insurance Practice Test

Insurance Annuities, Taxation & Retirement Practice Questions

Annuities, Taxation & Retirement makes up 5 of every 50 questions on a Tigertest Insurance practice test. Here are 10 of the 20 questions on it, each with the answer and the reason.

Updated 2026-11-10 by the Tigertest team. General portion only, on the NAIC model and standard prelicensing texts. Your state portion is separate.

1. 1. A father buys an annuity on his daughter's life and names his wife to receive any value left at death. Whose life determines the payments?

   • A.The father, as owner
   • B.The daughter, as annuitant
   • C.The wife, as beneficiary
   • D.Whichever of the three is oldest

   Answer: B. The annuitant is the person whose life expectancy measures the annuity payments. The owner controls and funds the contract, but owning it does not make the father the measuring life.

2. 2. During which phase of a deferred annuity does the owner pay premiums while the account earns tax-deferred interest?

   • A.Annuitization phase
   • B.Elimination period
   • C.Grace period
   • D.Accumulation phase

   Answer: D. Premiums are paid and earnings build tax-deferred during the accumulation phase. The annuitization (payout) phase comes later, when the value is converted into a stream of income.

3. 3. A 66-year-old retiree deposits a $200,000 lump sum and wants income to start next month. Which annuity best fits her goal?

   • A.Single premium immediate annuity
   • B.Flexible premium deferred annuity
   • C.Single premium deferred annuity
   • D.Fixed indexed deferred annuity

   Answer: A. An immediate annuity is bought with a single premium and begins payments within 12 months. A single premium deferred annuity is funded the same way but postpones income for years, which does not meet her need.

4. 4. Which type of annuity requires the selling producer to hold both a life insurance license and a securities registration?

   • A.Fixed indexed annuity
   • B.Fixed deferred annuity
   • C.Variable annuity
   • D.Single premium immediate fixed annuity

   Answer: C. A variable annuity invests through the insurer's separate account in subaccounts, so it is a security and requires FINRA registration plus a life license. An indexed annuity tracks an index but guarantees principal through a floor, so a life license alone is enough.

5. 5. Which annuity payout option provides the highest monthly income from a given amount of money?

   • A.Joint and 100% survivor
   • B.Installment refund
   • C.Life only (straight life)
   • D.Life with 10-year period certain

   Answer: C. Life only pays the most per month because payments stop at the annuitant's death and nothing goes to a beneficiary. Every option that adds a guarantee, such as a period certain or a refund, lowers the monthly amount.

6. 6. An annuitant chose life with 10-year period certain and dies after receiving monthly payments for 4 years. What happens next?

   • A.The beneficiary receives payments for 6 more years
   • B.The beneficiary receives all premiums in a lump sum
   • C.Payments stop and the insurer keeps the balance
   • D.The beneficiary receives payments for 10 more years

   Answer: A. The period certain guarantees 10 years of payments in total, so the beneficiary receives the remaining 6 years (10 - 4). Payments would stop at death only under a life only option.

7. 7. A married couple wants annuity income that continues for as long as either spouse remains alive. Which payout option should they choose?

   • A.Joint life
   • B.Life with period certain
   • C.Straight life on the older spouse
   • D.Joint and survivor

   Answer: D. Joint and survivor keeps paying until the second death, possibly at a reduced survivor amount. Joint life sounds similar but stops all payments at the first death.

8. 8. An annuitant paid $100,000 for a cash refund annuity and dies after receiving $70,000 in payments. The beneficiary receives:

   • A.$30,000 paid in monthly installments
   • B.A $30,000 lump sum
   • C.Nothing, because payments end at death
   • D.The full $100,000 premium

   Answer: B. A cash refund annuity pays the beneficiary the unrecovered premium ($100,000 - $70,000 = $30,000) in a lump sum. An installment refund annuity would instead continue the payments until the $30,000 is paid out.

9. 9. An owner invested $60,000 in a nonqualified annuity with an expected total return of $100,000 and receives $500 monthly. How much of each payment is taxable?

   • A.$500
   • B.$200
   • C.$0
   • D.$300

   Answer: B. The exclusion ratio is $60,000 / $100,000 = 60%, so $300 of each $500 payment is a tax-free return of cost basis. The remaining $200 is earnings taxed as ordinary income; $300 is the excluded portion, not the taxable one.

10. 10. A 62-year-old withdraws $20,000 from a nonqualified deferred annuity with a $50,000 cost basis and an $80,000 value. The withdrawal is:

    • A.A tax-free return of cost basis
    • B.Taxable as ordinary income plus a 10% early withdrawal penalty
    • C.Taxed at long-term capital gains rates
    • D.Fully taxable as ordinary income with no penalty

    Answer: D. Withdrawals from a deferred annuity are taxed LIFO, so the first $30,000 out is earnings and the full $20,000 is ordinary income. Because the owner is over 59 1/2, the 10% early withdrawal penalty does not apply.