FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationRegulatory Fundamentals and General Product KnowledgeMedium
A client is considering investing in a variable annuity and is concerned about the impact of inflation on their future retirement income. Which of the following features of a variable annuity could potentially help mitigate this concern?
- AThe surrender charge schedule.
- BThe subaccount investment options.
- CThe guaranteed minimum death benefit.
- DThe fixed annuity payout option.
Show answer & explanationAnswer & explanation
Correct answer: B. The subaccount investment options.
Variable annuities allow investors to allocate premiums to subaccounts, which are invested in a variety of securities, similar to mutual funds. These subaccounts offer the potential for growth that may outpace inflation, thus mitigating its impact on future purchasing power.
Why the other options are wrong
- A. Surrender charges are fees for early withdrawal and do not relate to inflation protection.
- C. A guaranteed minimum death benefit protects beneficiaries, not the annuitant's purchasing power against inflation.
- D. Fixed annuity payouts do not adjust for inflation and offer no growth potential to counter it.
Variable Annuity Subaccounts
Separate accounts within a variable annuity that hold various investment portfolios, allowing for market participation and potential growth.
- Similar to mutual funds, managed by an investment adviser.
- Performance varies based on market conditions.
- Offer potential for growth to combat inflation.
Memory trick: Variable means choices, choices mean potential.