Idaho · Life Insurance & Annuities Sample Interactive Mind Map
Fixed, Equity-Indexed & Variable Annuities
A visual breakdown of Fixed, Equity-Indexed & Variable Annuities — one of the concepts you can count on seeing on the exam.
The TESTivity Interactive Mind Mapping Graphic we picked for the Idaho Life Insurance sample is Fixed, Equity-Indexed & Variable Annuities — and this is a concept you can count on seeing on your pre-licensing exam. Get the structure straight once and those questions turn into free points.
So explore it. Click through, see how the pieces relate, and let the layout do some of the remembering for you.
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Annuities come in three flavors — and the difference is WHO bears the investment risk.
In a fixed annuity, the insurer credits a guaranteed rate and bears all the risk. Funds sit in the insurer’s general account, and the owner’s principal can’t drop from market losses.
In a fixed annuity, the insurer credits a guaranteed rate and bears all the risk. Funds sit in the insurer’s general account, and the owner’s principal can’t drop from market losses.
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Fixed Annuities & the General Account
Insurer bears the investment risk
- The insurer credits a guaranteed interest rate; the owner’s value can’t fall from market performance
- Premiums go into the insurer’s general account (same pool backing whole life cash values)
- General account assets are protected by state guaranty associations
- Annuitized payments are fixed and level — predictable, but no inflation protection
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Guaranteed vs. Current Rate
The floor and the rate actually credited
👇 Guaranteed (Minimum) Rate
The contractual floor — the insurer never credits less, regardless of markets.
Typically 1%–3%; cannot be lowered.
📈 Current (Declared) Rate
What’s actually credited now; may exceed the minimum when markets are favorable.
Insurer can adjust it — but never below the guaranteed minimum.
Exam Tip. Guaranteed minimum 2%, current rate 4.5% → the insurer can drop the current rate over time, but the owner always earns at least 2%. Fixed annuities do more than protect principal — they guarantee a minimum return.
A market value adjusted annuity is a fixed annuity with a twist on early surrenders.
In exchange for a higher guaranteed rate over a set period, an early surrender gets a market value adjustment that can swing for you or against you, based on where interest rates have moved.
In exchange for a higher guaranteed rate over a set period, an early surrender gets a market value adjustment that can swing for you or against you, based on where interest rates have moved.
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Market Value Adjusted (MVA) Annuity
Also called a modified guaranteed annuity
- Offers a higher guaranteed rate for a set guarantee period (typically 3–10 years)
- An early surrender triggers an adjustment tied to interest-rate movement
- Rates fell since purchase → adjustment is upward (bonds worth more)
- Rates rose since purchase → adjustment is downward (bonds worth less)
- Hold to maturity → no MVA; the full accumulated value is available
Exam TipBond prices and interest rates move inversely. Surrender early when rates have risen → the insurer’s bonds are worth less → the MVA reduces your surrender value. The MVA is symmetric — it can help or hurt, unlike a plain fixed annuity’s fixed surrender charge.
An equity-indexed annuity links your interest to a market index — but it’s still a fixed annuity, not a security.
You get a floor protecting against index losses and upside limited by a cap and participation rate. The insurer bears the risk, so no FINRA license is needed to sell it.
You get a floor protecting against index losses and upside limited by a cap and participation rate. The insurer bears the risk, so no FINRA license is needed to sell it.
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Equity-Indexed Annuity (EIA / FIA)
Index-linked crediting with downside protection
- Interest credited is linked to a market index (often the S&P 500), not a fixed declared rate
- Floor: account value can’t fall from negative index performance — worst credit is usually 0% (some offer a small positive floor)
- Cap: the maximum credited in a period (e.g., 8%), no matter how much the index gained
- Participation rate: credits only a set percentage of the gain (e.g., 80% × a 10% gain = 8% credited)
Frequently testedEIAs are NOT securities and need no FINRA license — only a state insurance license. The insurer bears the risk via options. Floor + cap + participation rate is the same idea as equity-indexed universal life, in an annuity wrapper.
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Floor, Cap & Participation in Action
A 0% floor, 9% cap example
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Index LOSES 8%
Credited rate = 0%. The floor blocks the loss — no negative credit.
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Index GAINS 15%
Credited rate = 9%. The cap limits the upside regardless of the bigger index gain.
A variable annuity puts the owner in the driver’s seat — and on the hook for market risk.
Premiums go into owner-directed separate account subaccounts that rise and fall with the market. Because it’s a security, selling one requires both an insurance license and a FINRA license.
Premiums go into owner-directed separate account subaccounts that rise and fall with the market. Because it’s a security, selling one requires both an insurance license and a FINRA license.
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Variable Annuities & Separate Accounts
Owner directs the investments and bears the risk
- Premiums go into separate account subaccounts (like mutual funds) the owner chooses
- Account value and (on variable payouts) income fluctuate with the market — the owner bears all investment risk
- Separate accounts sit apart from the general account; they’re not covered by state guaranty associations like general-account products
- Higher return potential, but the value can decline significantly in a downturn
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Licensing, Death Benefit & Living Benefits
What sets variable apart
- Licensing: requires BOTH a state insurance license AND a FINRA Series 6 or 7; plus SEC registration and prospectus delivery
- Death benefit: most guarantee the beneficiary at least total premiums paid, even if the account dropped; enhanced step-ups available for a charge
- Living benefits: optional riders — GMIB / GMWB / GLWB — guarantee minimum income or withdrawals regardless of market performance
Frequently testedVariable annuities need both a state insurance license and a FINRA Series 6 or 7, plus a prospectus. Fixed and equity-indexed annuities need only a state insurance license. This licensing split is a standard exam item.
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Top Exam Tips — Fixed, Equity-Indexed & Variable Annuities
1. Fixed: guaranteed minimum rate (the floor), general account, insurer bears risk, level payments, no inflation protection.
2. Guaranteed minimum = lowest rate ever credited; current/declared rate = what’s credited now (may be higher, never below the minimum).
3. MVA annuity: higher rate for a set period; early surrender adjusts up (rates fell) or down (rates rose); none if held to maturity.
4. EIA: index-linked, floor (usually 0%) + cap + participation rate; NOT a security, insurer bears risk, state license only.
5. Variable: separate-account subaccounts, owner bears all risk, can lose value; needs insurance + FINRA Series 6/7 and a prospectus.
6. Separate accounts aren’t covered by state guaranty associations the way general-account products are.
2. Guaranteed minimum = lowest rate ever credited; current/declared rate = what’s credited now (may be higher, never below the minimum).
3. MVA annuity: higher rate for a set period; early surrender adjusts up (rates fell) or down (rates rose); none if held to maturity.
4. EIA: index-linked, floor (usually 0%) + cap + participation rate; NOT a security, insurer bears risk, state license only.
5. Variable: separate-account subaccounts, owner bears all risk, can lose value; needs insurance + FINRA Series 6/7 and a prospectus.
6. Separate accounts aren’t covered by state guaranty associations the way general-account products are.
Exam vocabulary
Key Terms to Know
Fixed Annuity
Credits a guaranteed minimum interest rate; the insurer bears investment risk; backed by the general account.
General Account
The insurer's main investment portfolio backing fixed insurance and annuity guarantees.
Guaranteed Minimum Rate
The lowest interest rate a fixed annuity will ever credit — the contractual floor.
Current (Declared) Rate
The rate currently credited to a fixed annuity; may exceed the guaranteed minimum but the insurer can adjust it.
Market Value Adjusted (MVA) Annuity
A fixed annuity offering a higher rate for a set period, with an early-surrender adjustment based on interest-rate changes.
Equity-Indexed Annuity (EIA / FIA)
A fixed annuity crediting index-linked interest with a floor and cap; not a security; insurer bears the risk.
Floor
The minimum credited rate in an EIA (typically 0%); protects against negative index returns.
Cap
The maximum credited rate in an EIA; limits upside regardless of index performance.
Participation Rate
The percentage of an index gain credited to an EIA owner (e.g., 80% of a 10% gain = 8%).
Variable Annuity
Owner-directed separate-account investments; the owner bears investment risk; requires insurance + FINRA licensing and a prospectus.
Separate Account
Investment portfolios for variable products, held apart from the general account; not covered by state guaranty associations.
GMIB / GMWB / GLWB
Optional variable annuity riders guaranteeing minimum income, withdrawal, or lifetime withdrawal benefits regardless of market performance.
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