Massachusetts Life Producer Practice Exam

What does a bailout feature in a single premium deferred annuity allow?

1. To adjust the annuity benefits based on inflation

2. To waive the surrender charge if interest rates fall below a specified level

3. To convert the annuity into a life insurance policy

4. To increase monthly payments after a certain age

The correct answer is: To waive the surrender charge if interest rates fall below a specified level

A bailout feature in a single premium deferred annuity is designed to protect the annuitant from unfavorable conditions, particularly in relation to interest rates. When the bailout feature is included, it allows the annuitant to avoid surrender charges if the interest rates fall below a pre-established threshold. This is particularly beneficial as it provides a safety net, enabling the policyholder to withdraw funds or switch to a different investment option without incurring additional costs during periods of low interest rates. Such a feature is critical in maintaining the overall value of the investment, offering more flexibility and control to the annuitant in changing economic environments. The other options address features and benefits that do not align with the purpose of the bailout feature. Adjusting benefits based on inflation, converting into a life insurance policy, and increasing payments at a certain age are aspects generally associated with different types of annuity features or policies but do not pertain specifically to the bailout provision.