Income Intermediate: Annuity Risks

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1.
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.
2.
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.
3.
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.
4.
In a fixed annuity, it is the _______ who bears the investment risk.
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Insurance company. The insurance company guarantees the fixed annuitant's principal and a minimum rate of return. As such, it is the insurance company that bears the investment risk of a fixed annuity.
5.
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.