AD Banker Comprehensive Practice Exam

Which of the following choices best describes a factor that influences the value of an annuity?

1. The age of the annuitant

2. The type of underlying investments

3. The payment frequency selected

4. The health status of the insured

The correct answer is: The type of underlying investments

The value of an annuity is significantly influenced by the type of underlying investments. This is primarily because the performance of the investments affects the annuity's potential growth, especially in the case of variable annuities where the returns depend on the performance of selected investment options, such as stocks or bonds. A well-performing portfolio can enhance the annuity's value over time, while poor investment choices can diminish it. On the other hand, while factors like the age of the annuitant and the payment frequency also play roles in determining the payout amounts and terms of the annuity, they do not directly influence the underlying value in the same way that the actual investments do. The health status of the insured may have some relevance in the context of life insurance products but is not a primary influence on an annuity's value. Therefore, the type of underlying investments is the most crucial factor impacting an annuity's overall value.