Texas General Lines — Life, Accident, Health and HMOLife InsuranceMedium
An individual is planning for retirement and wants a financial product that guarantees income for life, provides a death benefit if they die before annuitization, and offers protection against market downturns. They are comfortable with moderate growth potential. Which type of annuity would be most suitable?
- AEquity-Indexed Annuity
- BVariable Annuity
- CFixed Annuity
- DImmediate Annuity
Show answer & explanationAnswer & explanation
Correct answer: A. Equity-Indexed Annuity
An Equity-Indexed Annuity (EIA) offers a guaranteed minimum interest rate (protection against market downturns) and potential for higher returns tied to a stock market index, without direct market risk. It also typically includes a death benefit during the accumulation phase. This fits the client's desire for guaranteed income for life, death benefit, market protection, and moderate growth.
Why the other options are wrong
- B. Variable Annuities offer high growth potential but carry market risk, which the client wants protection against.
- C. Fixed Annuities offer guaranteed income and protection but typically minimal growth potential, less than 'moderate growth potential' desired.
- D. Immediate Annuities begin payments immediately and are unsuitable for someone still accumulating for retirement.
Equity-Indexed Annuity (EIA)
An annuity that offers a guaranteed minimum interest rate (principal protection) and growth potential tied to the performance of a stock market index, but without direct investment in the market.
- Guaranteed minimum interest rate.
- Interest credited based on a formula linked to an equity index.
- Provides principal protection and avoids market losses.
- Offers moderate growth potential compared to fixed annuities.
Memory trick: EIA: Equity-Indexed Advantage for balanced growth and safety.