Annuity Fundamentals and Types Flashcards
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What is the primary purpose of an annuity?
Answer: To generate lifetime income through periodic payments
An annuity is designed to provide a steady stream of income, typically during retirement, by distributing payments over time.
Which type of annuity provides a guaranteed, fixed payment amount?
Answer: Fixed annuity
A fixed annuity provides predictable payments by offering a guaranteed interest rate and set payouts.
What is the main characteristic of a variable annuity?
Answer: Payments vary with investment performance
A variable annuity’s payments fluctuate based on the performance of underlying investment options, exposing the annuitant to market risk.
How does an indexed annuity differ from a variable annuity?
Answer: Indexed annuities offer market participation with downside protection
Indexed annuities provide returns based on a market index with some protection from market losses, while variable annuities have direct exposure to market risks.
Which of the following best describes an immediate annuity?
Answer: Payments begin shortly after purchase
An immediate annuity begins making payments soon after the contract is purchased, typically within a year, and is used for retirement income.
Which annuity type allows tax-deferred growth until withdrawals begin?
Answer: Deferred annuity
A deferred annuity allows the investor to accumulate funds on a tax-deferred basis, with taxes applied only upon withdrawals.