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.
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.
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.
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.
4.
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.
Choose wisely. There is only one correct answer.
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.
5.
An indexed annuity would be attractive to an investor who was pursuing the greatest guaranteed return possible.
Choose wisely. There is only one correct answer.
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.