Arkansas Life and Health Insurance Practice Exam

Which of the following Annuities would potentially be the most negatively impacted by the overall stock market falling in value?

1. Fixed

2. Indexed

3. Traditional

4. Variable

The correct answer is: Fixed

A Fixed Annuity would potentially be the most negatively impacted by the overall stock market falling in value because the returns are guaranteed by the insurance company at a fixed interest rate. Therefore, if the stock market falls, the insurance company may struggle to meet the promised returns, leading to a potential decrease in the annuity's value. Indexed, traditional, and variable annuities have different characteristics that may provide some protection or flexibility when the stock market falls. Indexed annuities offer a minimum guaranteed interest rate along with the potential for higher returns based on the performance of an external index, not directly tied to the stock market. Traditional annuities typically provide fixed periodic payments regardless of market conditions. Variable annuities allow the policyholder to allocate funds to different investment options, including stock market-based investments, and the returns fluctuate based on the performance of these investments.