RAA Risk Assessment & Mitigation 3

Question 1

A client is concerned about the risk of outliving income if they live past age 90. Which annuity payout option is specifically designed to eliminate this concern?

Accepted Answer

Life-only annuity

Answer

A life-only annuity provides guaranteed income for the annuitant's entire lifetime, no matter how long they live, directly mitigating longevity risk.

Question 2

Rising interest rates after a client locks into a fixed annuity represent which type of risk?

Accepted Answer

Opportunity cost risk

Answer

When rates rise after locking in a fixed annuity, the client misses the opportunity to earn higher returns, representing opportunity cost (interest rate) risk.

Question 3

A client's fixed annuity credited rate is 3% while inflation runs at 4%. Over time, what is the PRIMARY risk the client faces?

Accepted Answer

Purchasing power erosion

Answer

When the credited rate trails inflation, the real value of annuity payments declines each year, eroding the client's purchasing power.

Question 4

Which annuity rider is specifically designed to protect a client's income base from stock market downturns in a variable annuity?

Accepted Answer

Guaranteed minimum income benefit (GMIB)

Answer

A GMIB guarantees a minimum income base that grows at a set rate regardless of subaccount performance, protecting against market downturns reducing future income.

Question 5

A client asks how state guaranty associations protect annuity owners. What is the MOST accurate description of this protection?

Accepted Answer

They guarantee annuity values up to state-specified dollar limits if the insurer becomes insolvent

Answer

State guaranty associations cover annuity contract values up to statutory limits (commonly $250,000) in the event of insurer insolvency, with no federal backing.

(RAA) Registered Annuity Advisor Practice Test

(RAA) Registered Annuity Advisor Practice Test

RAA Risk Assessment & Mitigation 3