RAA Annuity Products & Structures 1

Question 1

What is an annuity?

Accepted Answer

A financial product that provides periodic payments

Answer

An annuity is a financial product typically sold by insurance companies that provides a stream of periodic payments to the annuitant, often for a specified period or for life. It is designed to provide a steady income stream, particularly during retirement, by converting a lump sum or a series of payments into guaranteed future income.

Question 2

What is a fixed annuity?

Accepted Answer

An annuity with a fixed interest rate

Answer

A fixed annuity is a type of annuity that offers a guaranteed interest rate on the principal invested, meaning the payments received by the annuitant are predictable and do not fluctuate with market performance. This provides a stable and secure income stream, making it suitable for investors who prioritize principal protection and predictable returns over potential higher growth.

Question 3

What is a variable annuity?

Accepted Answer

An annuity with returns based on market performance

Answer

A variable annuity is a type of annuity where the returns are based on the performance of underlying investment options, such as mutual funds, chosen by the annuitant. Unlike fixed annuities, the payment amounts can fluctuate, offering the potential for higher returns but also carrying greater market risk.

Question 4

What is an immediate annuity?

Accepted Answer

An annuity that provides income immediately

Answer

An immediate annuity, also known as a Single Premium Immediate Annuity (SPIA), is a contract where payments to the annuitant begin almost immediately after a lump sum premium is paid. It is designed for individuals who need to convert a sum of money into a regular income stream without a deferral period, providing immediate financial security.

Question 5

What is a life annuity?

Accepted Answer

An annuity that pays as long as the annuitant lives

Answer

A life annuity is a type of annuity that guarantees payments for the entire duration of the annuitant's life, regardless of how long they live. This provides lifelong income security, eliminating the risk of outliving one's savings, though payments typically cease upon the annuitant's death.

(RAA) Registered Annuity Advisor Practice Test

(RAA) Registered Annuity Advisor Practice Test

RAA Annuity Products & Structures 1