Question 46

Variable annuities generally pay benefits based on units rather than specific dollar amounts.

Variable annuities are structured to provide benefits that fluctuate based on the performance of an underlying investment portfolio, which is often measured in units. This means that the payout can vary over time, reflecting the investment's gains or losses.

A) A Flexible annuity

Flexible annuities allow the policyholder to alter their premium payments and investment allocations, but they do not inherently pay benefits based on units. Instead, they typically offer fixed or adjustable payouts based on the amount invested at the time of withdrawal.

B) A Variable annuity

Variable annuities are designed to pay benefits based on units of investment rather than fixed dollar amounts, aligning with the performance of the selected investments. This characteristic is fundamental to their structure, making them a suitable choice for those who seek potential growth tied to market performance.

C) A Deferred annuity

Deferred annuities accumulate funds over time before payouts begin, but their benefits are generally predetermined and not based on units. They typically provide fixed or variable payouts that do not change based on unit-based performance.

D) A Single Premium annuity

Single premium annuities require a one-time payment and provide income for a specified period or for the lifetime of the annuitant. The payouts are based on the initial premium rather than units, thus not meeting the criteria set by the question.

Conclusion

Variable annuities are the only option that directly correlates with benefits being based on units, as they fluctuate according to investment performance. All other options either provide fixed payments or do not specifically use a unit-based structure, making them unsuitable in this context.