Income Intermediate: Annuity Risks

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1.
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.
2.
Fixed annuities carry another type of liquidity risk associated with loss of principal due to market fluctuations.
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False. Variable, not fixed, annuities carry the risk that at the time of liquidation, account values will be down due to market fluctuations.
3.
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.
4.
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.
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.