What lifetime feature do variable annuities provide?

• A. Capital gains protection
• B. Lifetime income to cover longevity risk
• C. Refund of all contributions upon death
• D. Immediate liquidity

Answer: (B)

The main idea here is providing protection against longevity risk through a guaranteed lifetime income. A variable annuity can grow tax-deferred and, when set up with an annuitization option or a rider such as a guaranteed lifetime withdrawal benefit, promises payments for as long as the retiree lives. This ensures a steady stream of income even if the account balance would otherwise run out, addressing the fear of outliving savings.

Capital gains protection isn’t a typical feature of variable annuities; the value of the underlying investments can go up or down, and there isn’t a guaranteed shield against market-based gains. Refund of all contributions upon death is not the same as lifetime income; some contracts offer a death benefit or return-of-premium features, but those relate to death benefits rather than providing income for life. Immediate liquidity is not characteristic either, since withdrawals outside the lifetime-income feature often involve surrender charges and penalties and aren’t guaranteed to be available right away.

So the lifetime income to cover longevity risk is the best description of this feature.