Question 1 of 7
Explain how a variable annuity's separate accounts change the owner's risk compared with a fixed annuity. What should the client understand before choosing investment options?
Strong Interview Answer
A variable annuity allocates value to separate-account investment options, so contract value and variable benefits can rise or fall with investment performance and the owner bears that market risk. The client should understand the prospectus, investment choices, fees and expenses, surrender charges, guarantees, time horizon, and how annuitization or withdrawals affect the contract.
What to Listen For
- separate accounts
- owner bears investment risk
- value can rise or fall
- prospectus and fees
- surrender/liquidity considerations
Caution
A strong answer should distinguish investment risk from insurer-backed fixed-account guarantees and should not imply that a variable annuity guarantees market returns.