Washington Life Producer Practice Exam

What type of annuity offers returns based on the performance of a collection of investments?

1. Variable annuity

2. Fixed annuity

3. Immediate annuity

4. Deferred annuity

The correct answer is: Variable annuity

A variable annuity is designed to provide returns that are linked to the performance of a series of investments, typically through a selection of mutual funds or other investment options provided by the insurance company. The value of the investment can fluctuate based on market performance, meaning that the payments can vary over time. This characteristic allows policyholders to potentially benefit from market gains, but it also comes with greater risk since the value can decrease if the market performs poorly. In contrast, a fixed annuity guarantees a specified return rate, making it a safer option but without the potential for higher returns associated with investment performance. An immediate annuity starts paying out benefits right after a lump sum payment, while a deferred annuity delays payout until a later date, but both can be either fixed or variable. However, it’s the variable annuity that specifically aligns returns to investment performance, making it the correct choice for this question.