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Zorluk: ZorAnnuities and Insurance-Based Products

An investor annuitizes a non-qualified variable annuity contract, selecting a single life payout option with an Assumed Interest Rate (AIR) of 4%4\%. The calculated initial monthly payment is $1,500\$1,500. In Month 1, the chosen separate account subaccounts yield a net performance return of 6%6\%. In Month 2, the subaccounts yield a net performance return of 4%4\%. Assuming the total number of annuity units remains constant, which of the following statements best describes the monthly payout amount received by the investor in Month 2?

  1. A
    The Month 2 payout will decrease back to $1,500\$1,500 because the separate account net return declined from the prior month's rate of 6%6\% down to 4%4\%.
  2. B
    The Month 2 payout will be higher than the Month 1 payout because the subaccounts generated a positive net return of 4%4\%.
  3. The Month 2 payout will be equal to the Month 1 payout because the separate account net return exactly matched the Assumed Interest Rate.Cevap
  4. D
    The Month 2 payout will decrease below $1,500\$1,500 because subaccount performance experienced a negative month-over-month trend.

Cevap

The Month 2 payout will be equal to the Month 1 payout because the separate account net return exactly matched the Assumed Interest Rate.
The correct answer reflects the fundamental rule governing variable annuity payout adjustments: when the separate account's net investment performance equals the Assumed Interest Rate (AIR), the monthly payment amount remains unchanged from the previous month. Because performance exceeded AIR in Month 1, the payment increased. In Month 2, because performance equaled AIR (4%=4%4\% = 4\%), the payout amount holds steady at the higher Month 1 level.

Adım Adım Çözüm

1
Analyze Month 1 separate account performance against the Assumed Interest Rate (AIR).
In Month 1, actual net performance (6%6\%) exceeded the AIR (4%4\%), causing the annuity unit value and the resulting payout for Month 1 to increase above the initial baseline of $1,500\$1,500.
When subaccount performance exceeds AIR, the monthly check increases relative to the prior month.
2
Analyze Month 2 separate account performance against the Assumed Interest Rate (AIR).
In Month 2, actual net performance (4%4\%) equals the AIR (4%4\%).
When separate account performance equals the AIR, the monthly payout amount remains unchanged from the prior month's level.
3
Determine the relative payout amount for Month 2.
Because performance matched the AIR in Month 2, the payout stays equal to the increased Month 1 payment amount.
The comparison is strictly between current separate account performance and the AIR benchmark, not between current performance and the previous month's performance.

Anahtar Kavram

Assumed Interest Rate (AIR) Mechanics in Variable Annuity Payouts
Tahmini Süre:1m 45s
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Annuities and Insurance-Based Products

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