South Carolina Life Insurance Practice Exam

What causes a variable annuity benefit to vary?

1. The age of the annuitant

2. The insurer’s performance

3. The underlying investments

4. The payment plan selected

The correct answer is: The underlying investments

A variable annuity benefit varies primarily due to the underlying investments. In a variable annuity, the premiums paid are invested in a variety of options such as stocks, bonds, or mutual funds. The performance of these investments directly influences the value of the annuity and subsequent benefits. When the investments perform well, the value of the annuity can increase, leading to higher potential benefits. Conversely, if the investments perform poorly, the value can decrease, resulting in lower benefits. This variability is a key characteristic of variable annuities, making them distinct from fixed annuities, where benefits do not change based on investment performance. Factors such as the age of the annuitant, the insurer's performance, and the selected payment plan may affect other aspects of the annuity, but they do not determine the variability of the benefits in the same way that the performance of the underlying investments does.