Question 67

Funds are invested in a separate account

A fixed annuity contract does not involve funds being invested in a separate account; instead, the insurer manages the funds and guarantees a minimum interest rate.

A) Funds are invested in a separate account

This option is incorrect because fixed annuities typically invest funds in the insurer's general account rather than a separate account. This characteristic distinguishes fixed annuities from variable annuities, where funds are indeed invested in separate accounts that can vary in value based on the performance of underlying investments.

B) The minimum interest rate is guaranteed in the contract

This option is correct for fixed annuities. They provide a guaranteed minimum interest rate, ensuring that the contract holder will earn at least a certain amount of interest on their investment, regardless of market conditions.

C) Benefit payments remain level

This option is also correct for fixed annuities. Benefit payments from a fixed annuity are designed to remain level over time, providing a predictable payout to the annuitant.

D) It may be sold as an immediate or deferred annuity

This option is correct as well. Fixed annuities can be structured as either immediate annuities, which start payments shortly after the initial investment, or deferred annuities, which begin payments at a later date.

Conclusion

The correct answer, A, is definitively right because it highlights a fundamental difference between fixed and variable annuities. All other options correctly identify characteristics inherent to fixed annuity contracts, such as guaranteed interest rates, level benefit payments, and the ability to be structured as immediate or deferred products.