Your client is trying to choose between a variable annuity and a fixed annuity. You can tell him that:
I. the fixed annuity will make guaranteed monthly payments, but has more purchasing power risk than a variable annuity.
II. he can expect higher monthly payments from his fixed annuity during a bear market than he would get from a variable annuity.
III. the earnings on both variable and fixed annuities grow tax-deferred.

Question

Quizplus · Accepted Answer

Only Statements I and III are accurate. When your client is trying to choose between a variable annuity and a fixed annuity, you can tell him that the fixed annuity will make guaranteed monthly payments, but has more purchasing power risk than a variable annuity, and that the earnings on both variable and fixed annuities grow tax-deferred. You cannot tell him that he can expect higher monthly payments from his fixed annuity during a bear market than he would get from a variable annuity. This will depend on various factors, such as the amount of the fixed annuity payment, the assumed interest rate, and the actual returns earned on the variable annuity investment portfolio.

Your Client Is Trying to Choose Between a Variable Annuity