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Zorluk: OrtaAnnuities and Insurance-Based Products

An investor holding a deferred variable annuity contract is reviewing the distribution of risks between the contract owner and the issuing insurance company. Which of the following risks is borne entirely by the insurance company rather than the annuity owner?

  1. A
    The risk that investment returns in the subaccounts fail to keep pace with market benchmarks
  2. The risk that annuitants as a group live longer than expected, requiring lifetime payout guarantees to be honoredCevap
  3. C
    The risk that inflation reduces the purchasing power of variable annuity payout amounts over time
  4. D
    The tax risk associated with IRS early withdrawal penalties incurred on distributions prior to age 59½

Cevap

The risk that annuitants live longer than anticipated (mortality risk) is guaranteed and assumed entirely by the issuing insurance company.
In a variable annuity contract, the issuing insurance company assumes mortality and expense risk. The mortality risk guarantee ensures that the insurer must continue paying the annuitant for the rest of their life once annuitized under a lifetime payout option, even if the annuitant lives significantly longer than mortality tables predict.

Adım Adım Çözüm

1
Distinguish between market/investment risk and insurance guarantees in variable annuity contracts.
Recognize that variable annuity separate account assets are invested in market securities, placing market investment risk on the contract owner.
The defining feature of variable annuities is that the contract owner bears the investment risk of the underlying subaccounts.
2
Identify specific guarantees provided by the insurance issuer under the contract.
The insurance company provides mortality and expense risk guarantees.
Mortality risk guarantees ensure that if an investor annuitizes under a lifetime payout option, the insurer must continue making payments for life even if the annuitant exceeds their statistical life expectancy.

Anahtar Kavram

Insurance Guarantees vs. Investment Risk in Variable Annuities
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Konular

Annuities and Insurance-Based Products

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