What is the purpose of the Assumed Interest Rate (AIR) in a variable annuity?

What is the purpose of the Assumed Interest Rate (AIR) in a variable annuity?

• A. It determines the Administrative Charge
• B. It sets the contract's surrender penalties
• C. It determines payout and provides a floor for gains
• D. It guarantees a fixed rate of return

Answer: (C)

The main idea is that the Assumed Interest Rate is a calculation benchmark used to size the guarantees in a variable annuity. It provides the floor for how large guaranteed payouts or withdrawals can be, even if the actual investment performance is weak. In guarantees like living benefits or withdrawal guarantees, the insurer uses the AIR to determine the minimum amount you’re guaranteed to receive. The actual account value can go up or down with market performance, but the AIR helps set the minimum payout level under the contract’s guarantee. It does not set administrative charges, surrender penalties, or promise a fixed return on the investments.

The main idea is that the Assumed Interest Rate is a calculation benchmark used to size the guarantees in a variable annuity. It provides the floor for how large guaranteed payouts or withdrawals can be, even if the actual investment performance is weak. In guarantees like living benefits or withdrawal guarantees, the insurer uses the AIR to determine the minimum amount you’re guaranteed to receive. The actual account value can go up or down with market performance, but the AIR helps set the minimum payout level under the contract’s guarantee. It does not set administrative charges, surrender penalties, or promise a fixed return on the investments.