South Carolina Life Insurance Practice Exam

Why might an investor choose a variable annuity over a fixed annuity?

1. For guaranteed income only

2. To benefit from potential market growth

3. For lower fees

4. To reduce investment risk

The correct answer is: To benefit from potential market growth

Choosing a variable annuity over a fixed annuity primarily allows an investor to benefit from potential market growth. Variable annuities are designed to invest in a variety of investment options, such as stocks and bonds, which can fluctuate in value based on market performance. This potential for higher returns can be particularly attractive to investors who are willing to assume a certain level of risk in exchange for the possibility of greater growth in their investment. In contrast, fixed annuities offer guaranteed returns at a set interest rate, which provides stability but typically yields lower overall returns compared to the growth potential of variable annuities. By opting for a variable annuity, investors can align their investment strategy with their financial goals and risk tolerance, seeking to capitalize on upward movements in the market while also having some level of protection through the insurance features the annuity provides.