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Portfolios 401: Deferred, Fixed, and Variable Annuities

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1.
An annuity that delays payments until some point in the future is called a(n) _______.
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Deferred annuity. A deferred annuity delays payments until some point in the future.
2.
When you annuitize, you are paying into your annuity account.
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False. When you annuitize, you begin receiving income from your annuity.
3.
Equity-indexed annuities typically _______ some safeguards if the stock market dives.
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Do provide. These annuities allow you not only to share when the market goes up, but they usually limit your losses when the market goes down.
4.
A fixed annuity is a good hedge against inflation.
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False. Fixed-income payments and relatively low returns mean that annuities provide little protection against inflation.
5.
Which of the following is a benefit of variable annuities?
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Better potential return. Variable annuities feature neither guaranteed returns nor fixed payments.
6.
Your monthly income from a fixed annuity is based on _______.
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Your age and your sex. Your age and sex are two factors that determine the monthly payment you receive from an annuity. "The value of your investments" indicates a variable annuity.
7.
When you invest in a variable annuity, your funds go into the insurance company's general account.
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False. In contrast to a fixed annuity, in which your funds are limited to the general account of the insurance company, variable annuities make available separate account investments in the stock, bond, and/or money markets.
8.
An annuity's exclusion ratio keeps your contributions from being taxed twice.
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True. The exclusion ratio determines what part of your annual payments is made up of earnings (which are taxed) and what part is your basis (the money you contributed to your annuity, which was already taxed).