Question 29

Variable annuities are not backed by the general account of a life insurer.

Variable annuities are backed by a separate account, which allows the investment performance of the underlying assets to affect the value of the policy. This differentiates them from other types of annuities that are supported by the general account.

A) Fixed annuities.

Fixed annuities are backed by the insurer's general account, which guarantees a fixed rate of return to policyholders. This provides a stable investment option where the insurer assumes the investment risk.

B) Variable annuities.

Variable annuities, unlike fixed annuities, are not backed by the general account. Instead, they are supported by a separate account that allows policyholders to allocate their premiums among various investment options, making the returns variable based on market performance.

C) Indexed annuities.

Indexed annuities are backed by the general account as they offer a minimum guaranteed return along with the potential for additional returns tied to a stock market index. This structure allows the insurer to manage the risks associated with the guarantees.

D) Market-value adjusted annuities.

Market-value adjusted annuities are also backed by the general account. They offer a guaranteed interest rate along with adjustments based on the market value, which ties their returns to the performance of the general account.

Conclusion

Variable annuities stand out as the only option not supported by the general account, as they rely on a separate account for their investment performance. This distinction is crucial as it highlights the different risk profiles and investment mechanisms associated with variable annuities compared to fixed, indexed, and market-value adjusted annuities, which all depend on the stability provided by the general account.