Variable Annuities
In a variable annuity, if the assumed interest rate (AIR) is 5% and the separate account earns 7% during a payment period, the next payment will:
AIR vs actual: Actual > AIR = payment increases. Actual < AIR = payment decreases.
Complete Analysis & Legal Rationale
In variable annuities, payments increase when the separate account performance exceeds the AIR and decrease when performance is below the AIR. Since 7% actual return exceeds the 5% AIR, the next payment will increase.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Matches the verified teaching point in the explanation.
Payments increase (not decrease) when actual returns exceed AIR.
Variable annuity payments are recalculated each period, not annually.
Payment adjustments are automatic based on AIR vs. actual performance.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.