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Variable Annuities, Retirement Plans, and Life Insurance


This chapter will cover a variety of important topics relating to annuity products and retirement plans. Many investors choose to purchase annuities to help plan for retirement. Over the years a wide range of annuity products have been developed to meet different investment objectives and risk profiles. This section will cover both variable and fixed annuities products as well as a number of types of retirement plans.

A full understanding of annuities and retirement plans will be needed in order to successfully complete the exam.


An annuity is a contract between an individual and an insurance company. Once the contract is entered into, the individual becomes known as the annuitant. The three basic types of annuities are designed to meet different objectives. The three types of annuities are:

• Fixed annuity

• Variable annuity

• Combination annuity

Although all three types allow the investor's money to grow tax-deferred, the type of investments made and how the money is invested varies according to the type of annuity.


A fixed annuity offers investors a guaranteed rate of return regardless of whether the investment portfolio can produce the guaranteed rate. If the performance of the portfolio falls below the rate that was guaranteed, the insurance company owes investors the difference. Because the purchaser of a fixed annuity does not have any investment risk, a fixed annuity is considered an insurance product, not a security. Representatives who sell fixed annuity contracts must have an insurance license. Because fixed annuities offer investors a guaranteed return, the money invested by the insurance company will be used to purchase conservative investments such as mortgages and real estate, investments whose historical performance is predictable enough so that a guaranteed rate can be offered to investors. All of the money invested into fixed annuity contracts is held in the insurance company's general account. Because the rate that the insurance guarantees is not very high, the annuitant may suffer a loss of purchasing power due to inflation risk.

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