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.
Choose wisely. There is only one correct answer.
False. By law, separate account funds are kept apart from general account assets and are invested in a portfolio of securities.
2.
Mortality risk can affect both the buyer of an annuity and the insurance company.
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True. Mortality risk, the risk associated with the "payments for life" feature of annuities, can affect both the annuitant and the insurance company.
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.
If the index appreciates in value, the annuitant's account is credited with _______.
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A percentage of that increase. If the index appreciates, the annuity is credited with a percentage of that increase, based upon a pre-determined participation rate.
5.
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.