Annuitization

The accumulation phase of a deferred annuity is when:

1. A.Income payments are made to the annuitantPayments flowing out to the annuitant define the payout phase, which begins at annuitization. Accumulation is the period before that, when money is going in and contract value is building tax-deferred.
2. B.Contributions are made and value grows tax-deferredCorrect - the pay-in/growth phase.
3. C.The contract is surrenderedA surrender does typically happen during the accumulation years, which is what makes this feel close. Surrendering terminates the contract and pays out the value in a lump sum, whereas accumulation describes the ongoing period of contributions and deferred growth.
4. D.The death benefit is paidThe death benefit is indeed a feature that applies while the contract is still accumulating, so the association is not wrong. Paying it is an event that ends the contract rather than a description of the phase, which is defined by contributions building value on a tax-deferred basis.

Why: During accumulation, contributions are made and value grows tax-deferred, before annuitization.

Annuitization is best described as:

1. A.Converting the accumulated contract value into a stream of periodic paymentsCorrect. At annuitization accumulation units are exchanged for a fixed number of annuity units and payouts begin.
2. B.Making a lump-sum withdrawal of the contract's valueA lump-sum surrender ends the contract. Annuitization creates a payment stream instead.
3. C.Exchanging one annuity contract for another without current taxThat is a Section 1035 exchange, which is a transfer between contracts, not the start of payouts.
4. D.Allocating contributions among the subaccounts of the separate accountThat is an allocation decision during accumulation, well before any payout begins.

Why: Annuitization is the event that converts the accumulated value into a stream of periodic payments. Accumulation units are exchanged for a fixed number of annuity units, and the payout phase begins.

During a variable annuity's payout phase:

1. A.The payment is guaranteed levelA level payment is what a fixed annuity delivers, and it is exactly what the contract owner traded away. The variable payout is recalculated each period from the current annuity unit value, which is the mechanism that offers a hedge against inflation and the reason the payment can fall as well as rise.
2. B.Units are added each monthUnits accumulate during the accumulation phase, when purchase payments are still going in. Annuitization reverses the flow and locks the unit count in place; from that point money comes out, so nothing is being added.
3. C.The number of annuity units is fixed and the payment variesCorrect - fixed units, variable payment.
4. D.Both units and payments are fixedThis gets the fixed half right and then over-applies it. The number of annuity units is indeed frozen at annuitization, but the value of each unit continues to move with separate-account performance measured against the AIR, so the dollar payment varies from period to period.

Why: The number of annuity units is fixed at annuitization; the payment amount then varies with the value of each annuity unit.

Annuitization is the process of:

1. A.Naming a beneficiaryAn administrative designation the owner can make at any point in the contract's life. It settles who receives value at death and starts no income stream.
2. B.Cancelling the contractDescribes surrender, which liquidates the value in one payment and ends the contract. Annuitization does the opposite: it keeps the contract alive and pays the value out over time.
3. C.Buying more insuranceAnnuities are not bought to add death benefit, and annuitization is a payout election rather than a purchase. Nothing new is acquired at the moment the owner annuitizes.
4. D.Converting accumulated value into income paymentsCorrect - the payout conversion.

Why: Annuitization converts an annuity's accumulated value into a stream of income payments.