An investor who has accumulated assets inside a variable annuity contract is now evaluating options for annuitizing the contract to generate a stream of retirement income. Which of the following statements regarding variable annuity payout options and risk guarantees during the annuitization phase are correct?
- The contract owner continues to assume the investment risk associated with the performance of the underlying separate account subaccounts during the annuitization payout phase.Cevap
- The issuing insurance company assumes the mortality risk by guaranteeing periodic payout income for the life of the annuitant when a life contingency payout option is chosen.Cevap
- CChoosing a straight life (life-only) annuitization option guarantees that any remaining contract balance will be refunded to a beneficiary if the annuitant dies shortly after payouts begin.
- DOnce annuitization is elected, periodic payout checks are fixed in dollar amount and unaffected by subsequent investment fluctuations in the separate account.
Cevap
The statement that the contract owner assumes investment risk during the payout phase and the statement that the insurer guarantees mortality risk under life contingency payout options are both correct.
In a variable annuity during the payout phase, the investor bears the investment risk because monthly payouts depend on subaccount investment performance relative to the contract's AIR. Meanwhile, the issuing insurance company assumes mortality risk, guaranteeing that lifetime income payments will continue as long as the annuitant lives.
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Variable Annuity Annuitization, Investment Risk vs. Insurance Guarantees