SIE practice questionhardVariable Annuities — Annuitization
When a variable annuity is annuitized, the payout amount depends on:
- AA fixed rate guaranteed at the time of purchase
- BThe performance of the separate account's underlying investments and an assumed interest rate (AIR)✓ Correct answer
- CThe prevailing federal funds rate at the time of each payment
- DThe consumer price index (CPI)
Explanation
Why B — The performance of the separate account's underlying investments and an assumed interest rate (AIR)
Variable annuity payouts during annuitization vary based on the performance of the separate account relative to the assumed interest rate (AIR). If actual performance exceeds the AIR, payments increase. If performance falls below the AIR, payments decrease. The AIR is used to calculate the initial payment amount. This distinguishes variable from fixed annuities, where payments remain constant.
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