Washington Life Producer Practice Exam

Fixed annuities provide each of the following benefits EXCEPT:

1. Guaranteed returns

2. Predictable income

3. Hedge against inflation

4. Tax-deferred growth

The correct answer is: Hedge against inflation

Fixed annuities offer a variety of benefits, and one of the most significant is the guaranteed returns they provide. This means that the insurance company backing the annuity guarantees a minimum rate of return on the investment, which gives consumers a sense of security in their financial planning. Additionally, fixed annuities provide predictable income, making them a popular choice for retirees or individuals seeking stable cash flow over time. The tax-deferred growth is another benefit, as the interest earned on the annuity is not taxed until it is withdrawn, allowing the investment to grow more rapidly than it would in a taxable account. However, while fixed annuities provide stable returns and predictable income, they do not effectively serve as a hedge against inflation. Annuities typically have a fixed interest rate which might not keep pace with inflation increases over time. As inflation rises, the purchasing power of the income generated from a fixed annuity could diminish, making this option less favorable in terms of protecting against inflationary pressures. Thus, the assertion that fixed annuities provide a hedge against inflation is not accurate, highlighting why this choice is the exception among the offered benefits.