Question 75

Guaranteed payments

Fixed annuities are characterized by guaranteed payments, which provide a steady income stream to the annuitant regardless of market fluctuations. This feature ensures financial security for individuals seeking predictable returns.

A) Guaranteed payments

This option is correct as fixed annuities are designed to offer guaranteed payments to the policyholder. These payments are predetermined and do not fluctuate based on market conditions, making them a reliable source of income during retirement.

B) Market risk

This option is incorrect because fixed annuities do not expose the investor to market risk. Unlike variable annuities, the value and payment amounts of fixed annuities remain stable and are not affected by changes in the financial markets.

C) Equity indexing

This option is also incorrect as fixed annuities do not involve equity indexing. Equity-indexed annuities are a different product that ties returns to a stock market index, which is not a characteristic of fixed annuities.

D) Variable interest

This option is incorrect because fixed annuities provide a fixed interest rate rather than variable interest. The interest earned is predetermined and does not change over time, contrasting with variable annuities where interest can fluctuate.

Conclusion

The key feature of fixed annuities is their guarantee of payments, providing stability and predictability in income. All other options either describe characteristics of different financial products or misrepresent the nature of fixed annuities, confirming that guaranteed payments is the defining feature.