Q:

The Shur-Gro variable annuity uses an AIR of 3% for those contract holders who are in the annuity stage. The past few months, the actual returns created by the separate account have been, respectively; 6%, 5.5%, 4% and 3.5%. Which of the following is a true statement regarding the payouts to annuitants?

A) Payments have not been affected
B) Payments have increased
C) Payments have steadily decreased
D) Payments have remained level

A:

The correct answer is b.
Any time the actual growth rate of the separate account exceeds the account’s AIR, the payment will increase compared to the previous month’s payment. Note that the mathematical reason for this is far beyond the scope of Series 6 exam.


RELATED FAQS

  1. What are the main kinds of annuities?

    Learn about the four basic types of annuities, and why the different investment and payout options are suitable for different ...
  2. For what types of financial instruments would I want to calculate the present value ...

    Learn about the types of financial instruments the present value of an annuity calculation is most useful for, including ...
  3. What is an annuity?

    An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments ...
  4. What is the difference between a fixed and variable annuity?

    Understand the difference between fixed, variable and indexed annuities, and read a brief summary of their respective risks ...
  5. In the separate account of a variable annuity, which of the following characteristics ...

    The correct answer is b. When the holder of a variable annuity contract annuitizes the contract, he/she is asking that the ...
  6. How are variable annuities taxed at death?

    Find out how variable annuities are taxed after the death of an annuitant, including an explanation of the various payment ...
RELATED TERMS
  1. Deferred Payment Annuity

    An annuity where the payments received will start some time in ...
  2. Whole Life Annuity Due

    A financial product sold by insurance companies that requires ...
  3. Immediate Payment Annuity

    An annuity contract that is purchased with a single lump-sum ...
  4. Annuity Consideration

    The money that an individual pays to an insurance company in ...
  5. Delayed Annuity

    An annuity in which the first payment is paid at a later date ...
  6. Annuity Due

    An annuity whose payment is to be made immediately, rather than ...
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center