PSI Ohio Insurance Practice Exam

Which of the following is a characteristic of an equity-indexed annuity?

1. It has a guaranteed maximum interest rate.

2. It has a guaranteed minimum interest rate.

3. It is only available to high-net-worth individuals.

4. It requires a medical examination for purchase.

The correct answer is: It has a guaranteed minimum interest rate.

An equity-indexed annuity is designed to offer a combination of growth potential and security. One of its defining characteristics is the guaranteed minimum interest rate. This means that regardless of how the equity markets perform, the annuity holder is assured a baseline return on their investment, which protects their principal and provides some level of income. The presence of a guaranteed minimum interest rate allows purchasers to benefit from potential market gains while also having confidence that their investment will not decrease in value beyond this minimum threshold. This safety net is important for investors who may be cautious about market fluctuations but still want to participate in equity markets to some extent. The other characteristics mentioned in the other choices do not accurately represent the standard features of equity-indexed annuities. Some equity-indexed annuities do set a guaranteed maximum interest rate, but this varies among products, and it is not a defining trait. Additionally, these annuities are generally marketed to a wide range of investors, not just high-net-worth individuals, and they typically do not require a medical examination for purchase, unlike some other types of insurance products.