South Carolina Life Insurance Practice Exam

Where does the money go when a fixed annuity owner pays a monthly annuity premium?

1. Insurance company’s general account

2. Separate investment account

3. State-guaranteed fund

4. Investor-specified account

The correct answer is: Insurance company’s general account

When a fixed annuity owner pays a monthly annuity premium, the funds go to the insurance company’s general account. This is because a fixed annuity is considered a traditional insurance product rather than an investment vehicle. The money collected from premiums is pooled with other premiums and invested by the insurance company to generate a return. The insurance company uses its general account to back the guarantees it provides, such as a fixed rate of return on the annuity and the promise to pay out benefits upon maturity or at the time of the policyholder's death. This guarantees that the annuitant will receive a predetermined income or benefit, regardless of market conditions. In contrast to other options, such as a separate investment account or an investor-specified account, which are often associated with variable or indexed annuities where the account value can fluctuate based on the performance of underlying investments, a fixed annuity remains steady and secure. This guarantees stability for the annuity owner, making it a lower-risk option.