South Carolina Life Insurance Practice Exam

What type of annuity requires an agent to have a securities license?

1. Fixed annuity

2. Variable annuity

3. Immediate annuity

4. Indexed annuity

The correct answer is: Variable annuity

A variable annuity requires an agent to have a securities license because it is considered a security under federal law. This type of annuity allows for investment in various financial instruments such as stocks, bonds, or mutual funds, which can lead to varying returns based on market performance. Given that the investment aspect introduces more risk than other types of annuities, specific regulations mandate that agents selling variable annuities be appropriately licensed to ensure they understand the complexities and potential risks involved in these products. In contrast, fixed annuities provide a guaranteed return and do not involve investment in the stock market; hence, they do not require a securities license. Immediate annuities are typically structured to start paying income right away, and indexed annuities, while linked to stock market indexes, also do not require a securities license because they primarily function like fixed annuities with some modifications based on index performance. Therefore, the unique characteristics of variable annuities necessitate specialized licensing for agents, highlighting the importance of understanding the regulatory landscape surrounding different financial products.