What are the characteristics of an annuity?

In general, annuities have the following features.
  • Tax deferral on investment earnings. …
  • Protection from creditors. …
  • An array of investment options. …
  • Taxfree transfers among investment options. …
  • Lifetime income. …
  • Benefits to heirs.

What is not characteristic of a fixed annuity?

Fixed annuities are characterized by all of the following, EXCEPT: The interest rate at which premium payments grow interest during the accumulation phase is not fixed.

What determines fixed annuity?

Unlike variable annuities and indexed annuities, fixed annuities are not linked to stock market performance or another investment. Instead, your money grows at an interest rate determined by the insurance company.

What is considered to be characteristics of an immediate annuity?

An immediate annuity is the most basic type of annuity. You make one lump-sum contribution. It’s converted into an ongoing, guaranteed stream of income for a specified period of time (as few as five years) or for a lifetime. Withdrawals may begin within a year.

What is an example of a fixed annuity?

A life insurance policy is an example of a fixed annuity in which an individual pays a fixed amount each month for a pre-determined time period (typically 59.5 years) and receives a fixed income stream during their retirement years.

What is a fixed term annuity?

What are Fixed-Term Annuities? A Fixed-Term Annuity provides you with a regular income for a fixed-period, generally between 1 and 25 years. At the end of the term, a guaranteed maturity value will be available.

What is a fixed annuity quizlet?

A fixed annuity is an annuity contract in which the insurer guarantees both the annuity principal and a specified rate of interest to be credited to the contract. These guarantees are backed by the financial strength and claims-paying ability of the insurer issuing the contract.

Which assumption concerning a fixed annuity is correct?

Your answer, Purchasing power risk., was correct!. An investor who purchases a fixed annuity contract assumes purchasing-power risk. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation.

How is an interest rate determined on a fixed annuity?

In a traditional fixed annuity, generally just called a fixed annuity, an interest rate is specified in the policy. This rate remains fixed for a specified period of time. The initial interest rate is determined by prevailing fixed rates and may be higher than CDs or government bond rates.

What entity backs the guarantees provided by fixed annuity products?

the insurance company
With a fixed annuity, the insurance company guarantees both the rate of return (the interest rate) and the payout to the investor.

What are the risks of a fixed annuity?

Risks of Fixed Annuities

A downside to fixed annuities is that they are much less liquid than stocks, bonds or funds – and investors can face penalties such as a surrender charge for early withdrawals. There can be missed opportunity costs to consider.

What is a disadvantage of fixed annuities?

One of the disadvantages of fixed annuities is that they may not keep pace with inflation. This means that the purchasing power of your annuity payments may decline over time. In addition, fixed annuities typically offer low-interest rates, which can also reduce the purchasing power of your payments.

Are fixed annuities insured?

Are Annuities Insured By The FDIC? Annuities are not FDIC-insured, but they do offer comparable safeguards for your money. The claims-paying capability of the insurance company guarantees an annuity.

What are the benefits of a fixed annuity?

Benefits of a Fixed Annuity
  • Predictable investment returns.
  • Guaranteed minimum rates.
  • Tax-deferred growth.
  • Guaranteed income payments.
  • Relative safety of principal.