Colorado Life Producer License Practice Test

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Study for the Colorado Life Producer License Test. Utilize flashcards and multiple choice questions with hints and explanations. Prepare for success!

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What distinguishes fixed annuities from variable annuities?

Fixed annuities have variable payments
Variable annuities are guaranteed
Fixed annuities have guaranteed payments
Variable annuities do not require a premium

The correct answer is: Fixed annuities have guaranteed payments

Fixed annuities are characterized by having guaranteed payments to the annuitant, regardless of market performance. This means that the issuer of the fixed annuity promises to provide a predetermined amount of income over a specified period. This feature makes fixed annuities a stable and predictable investment option, appealing to individuals who prioritize security and consistency in their retirement income. In contrast, variable annuities are tied to the performance of underlying investments in various sub-accounts, which means that the payments can fluctuate based on market conditions. Consequently, the returns on variable annuities are not guaranteed, and this introduces a level of risk that is not present with fixed annuities. Understanding this vital distinction is crucial for investors when considering which type of annuity aligns better with their financial goals and risk tolerance.