Question

An investor has been making payments into a variable annuity for the last 20 years. The investor decides to annuitize and selects a straight-life payout. Which two of the following statements are TRUE?
I. the investment risk is assumed by the insurance company
II. the investment risk is assumed by the customer
III. the amount of the payment to the customer is guaranteed by the insurance company
IV. the amount of the payment to the customer is not guaranteed
a. I and III
b. I and IV
c. II and III
d. II and IV

Answer 1

Answer:

d. II and IV.

Explanation:

Since the investor has been making payments into a variable annuity for the last 20 years and decides to annuitize and selects a straight-life payout. The following statements would be true;

a. the investment risk is assumed by the customer.

b. the amount of the payment to the customer is not guaranteed.

An annuity is an agreement between an investor (contract owner) and an insurance company, where he or she gives a lump-sum of money to the insurer and in return receives regular disbursements, either immediately or some time in the future. It offers the following covers, legacy planning, primary protection, healthcare costs, lifetime income etc.

Annuities are generally classified into two (2) categories mainly; Fixed and Variable annuities.

Under the variable annuity, the investment risk is assumed by the customer (investor) unlike what is obtainable in the fixed annuity.

Ultimately, the performance of the separate account impacts the amount of the payment. Thus, the payment might decrease, increase, or even remain the same since the amount of the payment to the customer (investor) isn't guaranteed.