Texas Life Agent Practice Exam

Which type of annuity allows investment to appreciate with market conditions?

1. Immediate annuity

2. Fixed annuity

3. Variable annuity

4. Deferred annuity

The correct answer is: Variable annuity

The variable annuity is the correct answer because it allows the owner to invest in various sub-accounts, which can include stock and bond funds. This flexibility means that the returns on the investment can vary based on the underlying market performance, enabling the annuity’s value to potentially increase if the investments perform well. The policyholder bears the investment risk, meaning that while there is potential for greater returns due to market conditions, there is also a risk of losing some of the investment value. Immediate annuities, on the other hand, provide guaranteed payments starting right away, and fixed annuities offer a set rate of return that does not fluctuate with market conditions. Deferred annuities postpone distributions, but they can be either fixed or variable. However, it is the variable annuity specifically that is designed to adapt to market changes, making it the option that fully aligns with the notion of investment appreciation based on market conditions.