Annuities✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
In terms of the economic risks they address, how does an annuity differ from life insurance?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
The two products hedge opposite mortality risks. An annuity converts accumulated funds into an income the annuitant cannot outlive, so it addresses longevity risk - the danger of living too long. Life insurance addresses premature death - the danger of dying too soon and leaving dependents without income or support. This distinction explains why annuities emphasize living-benefit payments and life insurance emphasizes the death benefit.
Why the other options are wrong
- A) This reverses the products: the annuity's defining promise is periodic income during the annuitant's life, while life insurance's defining promise is a lump-sum death benefit.
- C) Only fixed annuities guarantee principal; a variable annuity's separate account values fluctuate with the market and are not guaranteed against loss.
- D) Annuities are purchased by people of many ages for accumulation as well as for payout; retirement is not a legal eligibility requirement.
Memory hook
Annuity = income stream promise; life insurance = death benefit promise. Keep the two promises straight.