Series 6 Simulation – Contracts and Riders

🧪 Series 6 Simulation – Contracts and Riders

This Series 6 simulation focuses on variable contracts and insurance riders—a key topic on the Investment Company and Variable Contracts Products Representative Exam. Use this scenario-based exercise to test your understanding of annuity structures, rider features, and suitability considerations.

📘 Simulation Scenario

Client Profile:

• Name: Michael Reyes
• Age: 52
• Risk Tolerance: Moderate
• Retirement Goal: Income starting at age 65
• Investment Objective: Long-term growth with downside protection
• Financial Status: $100,000 in savings, no current pension plan

🧾 Situation:

Michael is considering a variable annuity contract with the option to add multiple riders. His primary concerns are market volatility and guaranteed income in retirement. His representative recommends the following:

• A variable annuity with subaccount investment choices
• A Guaranteed Minimum Income Benefit (GMIB) rider
• A death benefit rider that locks in the highest account value on any contract anniversary
• A long-term care rider that provides monthly benefits if he becomes chronically ill

🧠 Questions

1. What is the primary benefit of a GMIB rider?
A. It provides tax-free withdrawals
B. It guarantees a fixed annuity payout based on a minimum income base
C. It offers a lump sum death benefit
D. It ensures contract fees never increase
✅ Correct Answer: B
Explanation: The GMIB rider guarantees future income based on a minimum value, even if the subaccounts perform poorly.

2. If Michael passes away while the contract is still in the accumulation phase, the death benefit rider:
A. Pays the surrender value only
B. Pays the original investment amount
C. Pays the highest contract value on any anniversary before death
D. Is forfeited
✅ Correct Answer: C
Explanation: This rider “locks in” the highest contract value on any anniversary before death and pays that amount to the beneficiary.

3. The long-term care rider is best described as:
A. A standard part of all variable annuities
B. A benefit that waives surrender charges after age 59½
C. An optional rider that provides income during chronic illness
D. A feature that enhances market performance
✅ Correct Answer: C
Explanation: This rider adds LTC protection by offering a benefit if the contract holder becomes chronically ill.

4. What is a potential drawback of adding multiple riders to Michael’s annuity?
A. Riders are not allowed on qualified plans
B. The contract becomes irrevocable
C. Riders may increase annual fees and reduce overall performance
D. Riders eliminate market exposure
✅ Correct Answer: C
Explanation: Each rider adds cost, which may reduce the annuity’s net return over time.

5. Why might a variable annuity be appropriate for Michael’s situation?
A. He wants immediate income and capital preservation
B. He seeks long-term growth and protection against market losses
C. He has no intention to invest for retirement
D. He prefers fixed returns with no risk
✅ Correct Answer: B
Explanation: Variable annuities are suitable for long-term growth with optional protection features like GMIB.

📌 Simulation Review

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