Utah Life Producer Practice Exam

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Prepare for the Utah Life Producer Exam with study materials, quizzes, and expert insights. Our resource offers hints and explanations for each question, enabling you to understand key concepts deeply. Boost your readiness with our comprehensive review!

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What is the key disadvantage of an annuity?

Low liquidity
Guaranteed returns
Guaranteed payouts
Tax-free growth

The correct answer is: Low liquidity

The key disadvantage of an annuity lies in its low liquidity. This means that funds invested in an annuity are typically not easily accessible without incurring penalties. When an individual commits money to an annuity, it is often locked in for a certain period, and withdrawing funds before the end of this term can result in surrender charges and tax implications. This lack of liquidity can be particularly concerning for individuals who may need to access their funds quickly for emergencies or other financial needs. In contrast, the elements of guaranteed returns, guaranteed payouts, and tax-free growth are generally viewed as advantages of annuities. These characteristics are designed to provide stability and predictability in retirement income, which is appealing to many investors looking for financial security in their later years. However, the trade-off for these benefits is often the reduced ability to access the invested capital freely.