62. Which annuity contracts are backed by a life insurer's separate account?
Answer: B
Variable annuities are backed by a life insurer's separate account.
Variable annuities are investment products offered by life insurance companies that are backed by a separate account. This structure allows the policyholder's premiums to be invested in a variety of assets, which can lead to varying returns based on market performance.
A) Fixed annuities.
Fixed annuities provide a guaranteed return and are not tied to the performance of a separate account. Instead, they are backed by the insurer’s general account, which means the investment risk is borne by the insurer rather than the policyholder.
B) Variable annuities.
Variable annuities are indeed backed by a life insurer's separate account. This allows policyholders to have their premiums invested in different funds, such as stocks and bonds, leading to variable returns that reflect the performance of those investments.
C) Equity-indexed annuities.
Equity-indexed annuities combine features of both fixed and variable annuities, but they are not solely backed by a separate account. While they can provide returns linked to a stock market index, they generally include guarantees that limit the insurer's risk, and thus are supported by the general account.
D) Market-value adjusted annuities.
Market-value adjusted annuities are structured to provide a guaranteed minimum interest rate, but they do not utilize a separate account. Like fixed annuities, they are funded through the insurer's general account, which also provides a level of security to the policyholder.
Conclusion
Variable annuities are distinctly characterized by being backed by a separate account, which differentiates them from fixed, equity-indexed, and market-value adjusted annuities. The other options either rely on the insurer's general account or do not utilize a separate account structure, making them incorrect in the context of this question.