Income Intermediate: Annuity Risks

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1.
The value of an indexed annuity will decrease proportionately with the index to which it is tied.
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False. If the index has a loss for the year, the annuity will not decrease in value. Instead, it will either remain at the exact dollar amount at which it began the year, or it will be credited some nominal interest rate.
2.
Liquidity risk is the risk that an investment's proceeds will not be available when you need them, or will be available only at a significantly reduced value.
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True. Liquidity risk is the risk that proceeds will not be available when you need them, or will be available only at a significantly reduced value.
3.
Investment risk is the risk that your underlying assets will default, depreciate, or lose purchasing power over time.
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True. Investment risk is the risk that your underlying assets will default, depreciate, or lose purchasing power over time.
4.
To save on management fees, most insurance companies combine the assets of their general and separate accounts.
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False. By law, separate account funds are kept apart from general account assets and are invested in a portfolio of securities.
5.
If you outlive your actuarial life expectancy, the insurance company profits.
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False. The insurance company bases its payments to you on your statistical life expectancy. So, if you outlive your life expectancy, the company loses money by having to continue paying you.