Quiz: Variable Annuities

Jenny directed $2,500 of her premium deposit to an aggressive technology stock sub-account. At the time of her original deposit, the value of an accumulation unit in that sub-account was $25. Jenny bought 100 units. Two months later, the value of each of those units dropped to $15. What is Jenny's investment in the technology stock account now? A. $5,000 B. $1,500 C. $2,500 D. $1,200

B. $1,500 Jenny's investment in the technology stock account would have declined from $2,500 to $1,500 ($15 × 100).

All the following statements about variable annuity sub-accounts are correct EXCEPT: A. Variable annuities today may offer up to 20 or 30 different sub-accounts. B. If sub-accounts perform well, the contract owner is likely to realize a greater investment growth than possible with a fixed annuity. C. The insurer selects the variable sub-accounts to which the contract owner's premiums are allocated. D. Sub-accounts can range from conservative money-market portfolios to moderate corporate bond portfolios to risky and aggressive international and sector stock portfolios.

C. The insurer selects the variable sub-accounts to which the contract owner's premiums are allocated. The contract owner selects the variable sub-accounts to which his or her premiums are allocated.

Which of the following is guaranteed under most variable annuity contracts? A. level monthly income payments B. each sub-account's net asset value C. a death benefit, if the owner or annuitant dies before the contract is annuitized D. a minimum interest rate

C. a death benefit, if the owner or annuitant dies before the contract is annuitized There is no minimum interest rate guarantee with variable annuities.

Which statement about variable annuities (VAs) is correct? A. Variable annuities can only be purchased as deferred contracts. B. While VAs may yield higher returns than a fixed annuity, both types guarantee the annuity's principal. C. Variable annuities offer fewer income settlement options than fixed annuities. D. With a variable annuity, annuity income payments may increase or decrease based on the investment performance of the sub-accounts supporting them.

D. With a variable annuity, annuity income payments may increase or decrease based on the investment performance of the sub-accounts supporting them. Though monthly payments may decrease, VAs are purchased in the hope that income payments will increase over time.