Utah Life Producer Practice Exam

The primary difference between fixed and variable annuities lies in their investment risk. Fixed annuities offer a guaranteed rate of return and provide a stable income stream, making them a low-risk option. The insurance company assumes the investment risk, ensuring that the annuitant receives a predetermined payment regardless of market fluctuations.

In contrast, variable annuities allow the owner to invest in a variety of investment options, typically mutual funds. This means that the payments received can vary based on the performance of the chosen investments. The annuitant bears the investment risk, and the returns are not guaranteed, which can lead to higher payouts if the investments perform well, but also the possibility of lower payouts or losses if the investments underperform.

Understanding the difference in investment risk is crucial for individuals when deciding which type of annuity suits their financial goals and risk tolerance.