FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsEasy
A client, age 62, is retired and is seeking an investment that provides a guaranteed stream of income for life, regardless of market performance. They are willing to exchange a lump sum for this certainty. Which of the following products would be MOST suitable?
- ADeferred Variable Annuity
- BFixed Immediate Annuity
- CVariable Annuity with a Guaranteed Minimum Withdrawal Benefit (GMWB)
- DEquity Indexed Annuity
Show answer & explanationAnswer & explanation
Correct answer: B. Fixed Immediate Annuity
A fixed immediate annuity is designed for individuals seeking an immediate, guaranteed, and predictable stream of income for life in exchange for a lump sum. This perfectly matches the client's stated needs.
Why the other options are wrong
- A. A deferred variable annuity focuses on growth with market exposure and defers income, which is contrary to the client's immediate income need and desire for guaranteed payments.
- C. While a GMWB rider can provide income, the underlying variable annuity still has market risk and the income is not fully 'guaranteed regardless of market performance' in the same way a fixed immediate annuity's payment is.
- D. An equity indexed annuity offers returns linked to a market index with principal protection, but its income stream is not as predictable or guaranteed as a fixed immediate annuity for lifetime income.
Fixed Immediate Annuity
An insurance contract that provides a guaranteed, predictable stream of income payments starting immediately in exchange for a lump sum premium.
- Income payments begin within one year.
- Payments are fixed and guaranteed.
- Suitable for clients needing immediate, stable income.
Memory trick: Immediate Fix for Lifetime Cash Flow