Minnesota Life Insurance License Practice Exam

Annuity products linked to a market-related index are known as what?

1. Equity indexed annuity

2. Fixed indexed annuity

3. Variable annuity

4. Immediate annuity

The correct answer is: Equity indexed annuity

Annuity products linked to a market-related index are referred to as equity indexed annuities. These financial products are designed to provide investors with a way to earn returns that are tied to the performance of a specific stock market index, such as the S&P 500. The unique feature of equity indexed annuities is that they combine elements of both fixed and variable annuities. While they offer a level of guaranteed returns similar to fixed annuities, they also provide the potential for higher returns based on the performance of a market index, which aligns with the "equity" part of their name. This structure generally includes a formula that determines how the returns will be credited based on the index performance, often with limits on gains and losses. Other types of annuities listed have distinct characteristics: fixed indexed annuities share similarities with equity indexed annuities but are often viewed as a more broad category and may emphasize fixed interest rates more. Variable annuities allow for direct investment in different securities, leading to fluctuations in cash value and account value with market performance. Immediate annuities focus on providing periodic payments shortly after a lump sum is paid, rather than being linked to equity indices. Thus, the correct term for