Annuities✓ Verified · outline & fact-checked · Sep 2026Difficulty 3/5
In a variable annuity, the assumed interest rate (AIR) is used to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The assumed interest rate (AIR) is the rate used to compute the first income payment in a variable annuity. After annuitization, the insurer compares actual separate account performance with the AIR: if actual returns exceed the AIR, income payments increase; if returns fall short, payments decrease. The AIR is therefore a benchmark against which actual performance is measured, not a guarantee. It is precisely this mechanism that makes variable annuity income vary.
Why the other options are wrong
- B) A fixed minimum return is a fixed-annuity guarantee; the variable annuity's separate account carries no guaranteed minimum return.
- C) Surrender charges are set by the contract's surrender schedule and are unrelated to the assumed interest rate.
- D) Variable annuity payments can decrease when returns fall below the AIR; only fixed annuities promise stable payments.
Memory hook
AIR = the race referee: beat it and payments grow, miss it and payments shrink. Benchmark, not promise.