Income Intermediate: Annuity Risks

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1.
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.
2.
The value of an indexed annuity will decrease proportionately with the index to which it is tied.
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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.
3.
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.
4.
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.
5.
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.