State RegulationsMA specificDifficulty 2/5
A client buys a fixed deferred annuity from a Massachusetts-licensed insurer and asks where her money is held. Which answer is correct?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A fixed deferred annuity invests the owner's funds in the insurer's general account: the insurer promises the credited rate, stands behind the contract with its own financial strength, and bears the investment risk. Massachusetts separates this structure from variable annuities, which use a separate account and shift investment risk to the owner under M.G.L. c. 175, § 132F et seq. The client's guarantee is only as good as the insurer — which is exactly why general account products are backed by the company's promise.
Why the other options are wrong
- B) The separate account is the variable annuity structure under M.G.L. c. 175, § 132F et seq.; a fixed deferred annuity carries no market-based account value.
- C) The Division of Insurance regulates insurers; it does not hold annuity funds in escrow for contract owners.
- D) Producers never hold client premiums in personal trust accounts; funds go to the insurer's general account.
Memory hook
Fixed annuity, general account: the insurer's balance sheet stands behind the guarantee.