Income Intermediate: Annuity Risks

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1.
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.
2.
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).
3.
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.
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.
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.