Texas Life Agent Practice Exam

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Prepare for the Texas Life Agent Exam. Study with flashcards and multiple-choice questions, each with hints and explanations. Get ready for your career as a licensed life insurance agent in Texas!

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What is one of the primary benefits of an annuity?

  1. Permanent insurance coverage

  2. Favorable tax treatment

  3. High liquidity

  4. Guaranteed interest rates

The correct answer is: Favorable tax treatment

The primary benefit of an annuity is its favorable tax treatment. Annuities grow on a tax-deferred basis, meaning that the earnings in the account are not taxed until they are withdrawn. This allows for the potential accumulation of more funds over time compared to taxable investment accounts, making annuities an attractive option for retirement savings. When distributions are eventually taken, they are taxed as ordinary income, which can often be beneficial from a tax planning perspective if the annuitant is in a lower tax bracket during retirement than during their working years. Favorable tax treatment is particularly advantageous because it encourages individuals to save for the long term without the immediate impact of taxes eroding their investment growth.

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