General Securities Representative (Series 7) Practice Exam

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What kind of income are investors likely to receive from a variable annuity?

Guaranteed fixed income
Interest income
Variable income that can fluctuate
Tax-exempt income

The correct answer is: Variable income that can fluctuate

Investors in a variable annuity are likely to receive variable income that can fluctuate, reflecting the performance of the investment options chosen within the annuity. Unlike fixed annuities, which provide a guaranteed income stream, variable annuities allow investors to allocate their premiums among a variety of investment options, such as mutual funds, stocks, or bonds. Because these options can perform differently over time, the income generated can change, depending on market conditions and the performance of the selected investments. This characteristic allows for the potential of higher returns, but also comes with the risk of decreased income if the investments do not perform well. This structure aligns with the concept of variable income, as it is not guaranteed and may vary from period to period based on the investment choices made by the investor within the annuity.