K owns a Variable Annuity with an assumed interest rate of 4%. If the actual performance of the separate accounts is 5%, the effect on this month's income benefit check will be_____________.

K owns a Variable Annuity with an assumed interest rate of 4%. If the actual performance of the separate accounts is 5%, the effect on this month's income benefit check will be_____________.

• A. Lower
• B. The same
• C. Unknown
• D. Higher

Answer: (D)

Income checks from a variable annuity with an income rider are calculated from an income base that grows based on credited interest. The assumed interest rate provides a floor for that growth, but the actual performance sets the real growth for the month. When the separate accounts earn more than the assumed rate, the income base increases more, and since the monthly payout is a percentage of that base, the payment rises. For example, if the base supports a 5% payout and the base grows due to 5% performance rather than the 4% assumed, the check will be higher this month.

Income checks from a variable annuity with an income rider are calculated from an income base that grows based on credited interest. The assumed interest rate provides a floor for that growth, but the actual performance sets the real growth for the month. When the separate accounts earn more than the assumed rate, the income base increases more, and since the monthly payout is a percentage of that base, the payment rises. For example, if the base supports a 5% payout and the base grows due to 5% performance rather than the 4% assumed, the check will be higher this month.