Risk Assessment & Mitigation Flashcards
7 cards from real RAA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Assessment & Mitigation flashcards as text
A 55-year-old high-income client wants to reduce sequence-of-returns risk in early retirement. Which annuity strategy best addresses this?
Answer: Allocating to a fixed indexed annuity with a guaranteed accumulation benefit
A fixed indexed annuity with a guaranteed accumulation benefit grows at a set minimum rate regardless of index performance, shielding a portion of retirement assets from early sequence-of-returns risk.
What does 'risk capacity' mean in the context of annuity suitability assessment?
Answer: The financial ability to absorb losses without jeopardizing essential goals
Risk capacity is the objective financial ability to sustain losses based on assets, liabilities, income, and time horizon, distinct from the subjective emotional willingness to take risk.
A client with $500,000 in a deferred annuity exercises a free withdrawal provision allowing 10% annually. How much can they withdraw without surrender charges in year 4?
Answer: $50,000
Most free withdrawal provisions allow 10% of the contract value annually, so 10% × $500,000 = $50,000 without incurring surrender charges.
Which of the following scenarios represents 'concentration risk' in an annuity context?
Answer: A client placing all retirement savings into a single fixed annuity from one carrier
Concentration risk arises when all retirement savings are placed with a single carrier, creating full exposure to that insurer's financial health and eliminating diversification.
An advisor discovers a client is withdrawing from a variable annuity subaccount during a market downturn. Which risk does this behavior amplify?
Answer: Sequence of returns risk
Withdrawing during a market downturn locks in losses and reduces the account base available for recovery, amplifying sequence-of-returns risk.
A client asks whether a 1035 exchange from an existing annuity to a new one with lower fees reduces risk. What is the PRIMARY risk the advisor must evaluate before recommending the exchange?
Answer: New surrender charge period on the replacement annuity
A 1035 exchange typically resets the surrender charge schedule, potentially locking the client into a new penalty period that outweighs any fee savings.
Which mortality assumption directly affects the pricing of a life annuity payout rate?
Answer: Life expectancy tables used by the insurer
Insurers price life annuity payments using mortality tables; longer projected life expectancies result in lower monthly payments to fund a longer expected payout period.