In some annuity contracts, the issuer does not guarantee a minimum rate of interest. What is the term for the rate that can vary?

In some annuity contracts, the issuer does not guarantee a minimum rate of interest. What is the term for the rate that can vary?

• A. Fixed rate
• B. Participation rate
• C. Dividend rate
• D. Interest rate

Answer: (D)

The rate that can vary is the interest rate. If the contract doesn’t guarantee a minimum return, the amount credited to the contract for a period depends on the insurer’s current performance or declared rates, so it can rise or fall over time. The term fixed rate would imply a guaranteed minimum, which isn’t the case here. A participation rate relates to how much of index gains are credited in indexed annuities, not the general rate that can change. A dividend rate is associated with participating life policies, not typical for standard annuities.

The rate that can vary is the interest rate. If the contract doesn’t guarantee a minimum return, the amount credited to the contract for a period depends on the insurer’s current performance or declared rates, so it can rise or fall over time. The term fixed rate would imply a guaranteed minimum, which isn’t the case here. A participation rate relates to how much of index gains are credited in indexed annuities, not the general rate that can change. A dividend rate is associated with participating life policies, not typical for standard annuities.