Which statement describes a characteristic of a variable annuity?

Which statement describes a characteristic of a variable annuity?

• A. Payments are guaranteed regardless of market performance.
• B. Payments depend on subaccount performance.
• C. Interest is credited based on an index with a floor and cap.
• D. Payments start immediately after purchase.

Answer: (B)

The main feature tested is that a variable annuity’s payments depend on the performance of the contract’s subaccounts. Premiums are allocated to separate accounts (like mutual funds), and the payout you receive is not guaranteed. It rises if the subaccounts perform well and falls if they don’t, reflecting the investment risk you assume with this type of annuity. This is why the statement describing payments that depend on subaccount performance is the best fit. In contrast, guaranteed payments regardless of market performance describe a fixed annuity, interest credited based on an index with a floor and cap describes an indexed annuity, and payments that start immediately after purchase describes an immediate annuity—neither of which captures the core idea of a variable annuity’s market-driven payouts.

The main feature tested is that a variable annuity’s payments depend on the performance of the contract’s subaccounts. Premiums are allocated to separate accounts (like mutual funds), and the payout you receive is not guaranteed. It rises if the subaccounts perform well and falls if they don’t, reflecting the investment risk you assume with this type of annuity.

This is why the statement describing payments that depend on subaccount performance is the best fit. In contrast, guaranteed payments regardless of market performance describe a fixed annuity, interest credited based on an index with a floor and cap describes an indexed annuity, and payments that start immediately after purchase describes an immediate annuity—neither of which captures the core idea of a variable annuity’s market-driven payouts.