Income Intermediate: Annuity Risks

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1.
An indexed annuity would be attractive to an investor who was pursuing the greatest guaranteed return possible.
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False. An indexed annuity would be attractive to many conservative investors, but could result in a return that was less than that of a guaranteed fixed annuity.
2.
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.
3.
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.
4.
To annuitize money within an annuity means that _______.
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You pay the account value to the insurance company and the company owns it. You do this in exchange for the insurance company's promise to pay you income for the remainder of your life (assuming you select such an option).
5.
Annuities generally carry _______.
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Both surrender charges and early withdrawal penalties. In exchange for no front-end costs and certain tax-favored advantages, annuities carry company-imposed surrender charges in the early years of ownership, and considerable IRS penalties for early withdrawal of funds prior to age 59½.