Income Intermediate: Annuity Risks

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
If you outlive your actuarial life expectancy, the insurance company profits.
Choose wisely. There is only one correct answer.
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.
Investment risk is the risk that your underlying assets will default, depreciate, or lose purchasing power over time.
Choose wisely. There is only one correct answer.
True. Investment risk is the risk that your underlying assets will default, depreciate, or lose purchasing power over time.
3.
Mortality risk can affect both the buyer of an annuity and the insurance company.
Choose wisely. There is only one correct answer.
True. Mortality risk, the risk associated with the "payments for life" feature of annuities, can affect both the annuitant and the insurance company.
4.
Fixed annuities carry another type of liquidity risk associated with loss of principal due to market fluctuations.
Choose wisely. There is only one correct answer.
False. Variable, not fixed, annuities carry the risk that at the time of liquidation, account values will be down due to market fluctuations.
5.
The value of an indexed annuity will decrease proportionately with the index to which it is tied.
Choose wisely. There is only one correct answer.
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.