Which of the following is true regarding variable annuities? (2023)

What is true about a variable annuity?

Variable annuities grow tax-deferred, so you don't have to pay taxes on any investment gains until you begin receiving income or make a withdrawal. 4 This is also true of retirement accounts, such as traditional IRAs and 401(k)s. You can tailor the income stream to suit your needs.

Which statement is TRUE regarding variable annuity contracts? The best answer is D. In a variable annuity contract, the principal amount is never guaranteed. The principal value may increase or decrease, depending on the performance of the separate account.

All of the following statements about variable annuities are true EXCEPT: A) a minimum rate of return is guaranteed. Answer: A: The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value.

Variable Annuities

However, a typical variable annuity offers three basic features not commonly found in mutual funds: tax-deferred treatment of earnings; a death benefit; and. annuity payout options that can provide guaranteed income for life.

Which of the following is a characteristic of a variable annuity? Variable annuities involve underlying equity investments in a separate account.

Reserves for variable annuity guarantees are sensitive to stock market conditions because annuity balances are primarily invested in mutual funds and other stock-related investments. Reserves are also subject to interest rate risk.

No guaranteed return – Unlike fixed and indexed annuities, there is no guarantee you will earn interest on your investment. If your investment selections perform poorly, this will affect the value of your annuity.

Higher investment risk.

Variable annuities do not offer guaranteed investment returns. If your investments do poorly, it's possible your balance may not grow or may even lose money.

Yes, all variable annuities are deferred annuities. A deferred annuity is an insurance product that allows you to invest your money and grow it tax-deferred. With a deferred annuity, you don't have to pay taxes on the growth of your investment until you withdraw the money.

What are the risks of a variable annuity?

Variable annuities come with tax advantages, but they can be expensive. Ideally, you should max out your contributions to your 401(k) and IRA before putting money in an annuity of any kind. That's because annuities are much more advanced products, which makes them better as secondary savings options.

The correct answer is: Interest earned is credited to the death benefit. Which policy has fixed premiums, a guaranteed minimum death benefit and nonguaranteed cash values? These are all characteristics of variable whole life insurance.

There are four basic types of annuities to meet your needs: immediate fixed, immediate variable, deferred fixed, and deferred variable annuities. These four types are based on two primary factors: when you want to start receiving payments and how you would like your annuity to be invested.

A variable is a characteristic that can be measured and that can assume different values. Height, age, income, province or country of birth, grades obtained at school and type of housing are all examples of variables. Variables may be classified into two main categories: categorical and numeric.

What is the most important characteristic of a variable? It must be measurable.

The annuitant bears the investment risk in a variable annuity, whereas the insurer bears the investment risk in a fixed annuity.

Most variable annuities provide a guaranteed death benefit, which means that if the contract has not already been annuitized, the insurance company will make a payment to the named beneficiary upon the death of either the owner or annuitant, depending on the contract.

Key Takeaways. Nonqualified variable annuities don't entitle you to a tax deduction for your contributions, but your investment will grow tax-deferred. When you make withdrawals or begin taking regular payments from the annuity, that money will be taxed as ordinary income.

Can you lose money in a variable annuity?

You can lose money in a Variable Annuity.

Variable annuities are investment-based retirement plans. You are investing in stocks, bonds, mutual funds, etc. If the investment performance is unfavorable, you will lose money.

Variable annuities are deferred annuity contracts that earn investment returns based on the performance of the underlying investment portfolios known as subaccounts, where you choose to put your money. The return in a variable annuity isn't guaranteed. The value of the subaccounts you choose could go up or down.

Variable, fixed, and fixed annuities can be cashed out at any time, but you will likely incur surrender charges.

Variable Annuity

You can choose from various investment options, including stocks, bonds, and mutual funds. These annuities offer protection against inflation, but each has different features and benefits.

A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic pay- ments to you, beginning either immediately or at some future date. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments.

Variable annuities usually feature many choices, but returns are often similar to popular ETFs and index funds (8% to 10% annually, on average). Your contract fees and investment expense ratios will eat into these returns, though.

A variable annuity is a tax-deferred retirement vehicle that allows you to choose from a selection of investments, and then pays you a level of income in retirement that is determined by the performance of the investments you choose. Compare that to a fixed annuity, which provides a guaranteed payout.

Yes, annuities are subject to Required Minimum Distributions (RMDs) starting at age 72 for most types of annuities, including traditional, variable, and deferred annuities, if they are held in an individual retirement account (IRA) or another qualified retirement plan.

Disadvantages of variable universal life insurance

VUL is typically subject to surrender charges for a period of up to 15 years (more or less depending on the carrier) which can be very high in the early years of the policy.

The greatest risk in a variable life insurance policy is the risk of the investments. The insurance company doesn't guarantee any rate of return (in most cases) and doesn't offer protection for investment losses. Like any investment, the cash value component of a variable life insurance policy comes with risk.

What are the biggest disadvantages of annuities?

The main drawbacks are the long-term contract, loss of control over your investment, low or no interest earned, and high fees. There are also fewer liquidity options with annuities, and you must wait until age 59.5 to withdraw any money from the annuity without penalty.

Therefore, variable annuities with risk control offer downside protection to investors at the expense of forgoing a degree of upside return. They offer market participants better visibility and predictability on future cash flows from annuities by effectively incorporating risk management tools in investment products.

A variable life insurance policy is a contract between you and an insurance company. It is intended to meet certain insurance needs, investment goals, and tax planning objectives. It is a policy that pays a specified amount to your family or others (your beneficiaries) upon your death.

Variable life insurance is a permanent life insurance policy with an investment component. The policy has a cash-value account with money that is invested, typically in mutual funds. As a permanent life insurance policy, variable life insurance pays a death benefit to your beneficiaries when you die.

Which statement is TRUE regarding a Variable Whole Life policy? Death Benefit - If the insured dies before the endowment's maturity, the policy's face value — also known as the “death benefit” — is paid in a lump sum to any beneficiaries.

Solution: All of the following are characteristics of variable life insurance except flexible premium payments. A flexible premium annuity allows the 'annuitant', or the owner of the annuity, to make premium payments over a number of years.

Solution(By Examveda Team)

All of the following are characteristics of variable life insurance except flexible premium payments.

A variable life policy has a minimum guaranteed death benefit, but there is no minimum guaranteed cash value. There is no performance guarantee on separate accounts and policy loans are required after the policy has been in effect for at least 3 years (36 months).

Variable Annuity

You can choose from various investment options, including stocks, bonds, and mutual funds. These annuities offer protection against inflation, but each has different features and benefits.

The main drawbacks are the long-term contract, loss of control over your investment, low or no interest earned, and high fees. There are also fewer liquidity options with annuities, and you must wait until age 59.5 to withdraw any money from the annuity without penalty.

What is the risk in a variable annuity?

Variable annuities involve investment risks just like mutual funds do. If the investment choices you selected for the variable annuity perform poorly, you could lose money. Contract fees may go towards your financial professional's compensation.

Example #2

Suppose a person invests $10,000 in a variable annuity plan, which invests 50% into debt and balances 50% into equities. The debt investment provides a return of 10%, whereas the equity investment. The shareholders make gain from such holdings in the form of returns or increase in stock value.