Colorado Life Producer License Practice Test

What do fixed annuities NOT provide as a feature?

1. Minimum guaranteed rate of interest

2. Equal monthly payments for life

3. Hedge against inflation

4. Guaranteed future income payments

The correct answer is: Hedge against inflation

Fixed annuities are designed to offer stability and predictability in terms of return on investment. One key feature is that they provide a minimum guaranteed rate of interest, ensuring that the account will grow over time regardless of market conditions. Additionally, fixed annuities can provide guaranteed future income payments, which are appealing for individuals looking for steady income during retirement. They can also offer equal monthly payments for life, which is an attractive feature for retirees seeking a reliable income stream. However, fixed annuities do not typically include a hedge against inflation. This means that the purchasing power of the fixed payments may decrease over time if inflation rises, as the fixed rate does not adjust to account for inflation. Therefore, while they guarantee certain income and return characteristics, they lack the flexibility to counteract the effects of inflation, leading to the conclusion that this is a feature not provided by fixed annuities.