New Jersey Life Insurance Exam Practice Question
Which of the following is a potential DISADVANTAGE of a fixed annuity?
Correct Answer: A
Rationale: A fixed annuity provides guaranteed payments, but one significant disadvantage is that these payments may lose purchasing power over time due to inflation. As inflation rises, the fixed income may not keep pace with the increasing cost of living, diminishing the value of the payments received.
Option B is incorrect because fixed annuities do offer a guaranteed benefit amount, ensuring predictable income. Option C describes variable annuities, where investments in securities lead to fluctuating returns, not applicable to fixed annuities. Option D misrepresents fixed annuities, as they typically provide payments for the annuitant's lifetime, not limited to two years after death.
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