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Portfolios 401: Deferred, Fixed, and Variable Annuities

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1.
The better your investment choices pay off, the more your fixed annuity will pay.
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False. Fixed annuities earn a fixed income rate and pay a fixed income, regardless of the performance of the underlying investments. You do not make investment choices in a fixed annuitypremiums go into the general account of the company.
2.
All of the following are benefits of deferred annuities except _______.
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Easy access to capital. Easy access to capital is not a benefit of deferred annuities, where surrender fees and tax penalties can affect early withdrawals.
3.
Since you may die before you collect the full value of your annuity through the life annuity option, it is better to select an option with a period certain provision.
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False. Though this could be true, it really depends upon one's objectives. Each option has benefits and tradeoffs.
4.
The period during which you receive payments from an annuity contract is called the _______.
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Payout period. In the payout period you surrender the value of the annuity contract in exchange for guaranteed monthly payments of benefits.
5.
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.
6.
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.
7.
With annuities, mortality risk benefits _______.
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Both. Annuitants trade the risk of dying before collecting full value for higher payments and possibly collecting more than full value if they live long.
8.
An annuity that allows you to shelter some of your current income from taxes is called a _______.
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Qualified annuity. A qualified annuity, based on the assets of a qualified retirement plan such as a 401(k) or 403(b), allows you to shelter some of your current income from taxes.