18 Free Texas Annuities Exam Practice Questions (2026)
How to Use This Annuities Set
Annuities are 12 of the scored questions on the Texas Life, Accident & Health exam — a smaller block than life policies or health, and the one candidates most often tell us they find genuinely confusing rather than merely long.
The confusion has a cause. An annuity is described by four independent choices — when it starts, how it is funded, how the value grows, and how it pays out — and the exam varies one at a time. Nothing makes sense until you separate those four axes; after that, most questions become a single decision.
These 18 questions come from LanePrep's Texas L&H quiz bank and follow the three areas the exam works through: identifying the annuity from the client's situation, the payout options and what a beneficiary actually receives, and the surrender charges and Texas suitability rules that decide whether a recommendation was allowed at all.
Name the four choices before you answer. Immediate or deferred, single or flexible premium, fixed or variable or indexed, and which payout option. The question usually turns on exactly one of them.
Practice Questions 1-6: Naming the Annuity from the Client
Reading the client and naming the contract. A lump sum that must pay income now is a different product from regular contributions over twenty years, and a client who wants a guaranteed floor wants something different again from one who accepts market risk for upside.
Question 1 (Chapter 4)
Maria, a 68-year-old retiree, is concerned about outliving her savings. She has a substantial lump sum from the sale of her business and wants to ensure a guaranteed income stream for the rest of her life, regardless of how long she lives. Which fundamental purpose of an annuity is Maria primarily seeking to address?
- A) Capital accumulation for future generations.
- B) Tax-free investment growth.
- C) Transfer of longevity risk.
- D) Short-term liquidity for emergencies.
Show answer & explanation
Answer: C
Maria's concern about outliving her savings directly relates to longevity risk. Annuities are specifically designed to transfer this risk from the individual to the insurance company by providing guaranteed income for life. While annuities offer tax-deferred growth (not tax-free) and can accumulate capital, Maria's primary stated concern is outliving her money, which is addressed by the transfer of longevity risk. Annuities are generally not ideal for short-term liquidity.
Question 2 (Chapter 4)
John, 45, wants to start saving for retirement but prefers to make regular, smaller contributions over many years rather than a single large deposit. He is looking for an annuity that allows him to contribute monthly until he retires at age 65. Which funding method is most suitable for John's needs?
- A) Single Premium Immediate Annuity (SPIA).
- B) Flexible Premium Deferred Annuity.
- C) Single Premium Deferred Annuity.
- D) Immediate Variable Annuity.
Show answer & explanation
Answer: B
John's desire to make regular, smaller contributions over many years points to a Flexible Premium annuity. Since he plans to contribute until retirement at age 65, the payouts will be deferred until a later date, making it a Deferred Annuity. Therefore, a Flexible Premium Deferred Annuity is the most suitable option. A Single Premium annuity involves one lump sum, and an Immediate Annuity starts payouts within one year, neither of which fits John's scenario.
Question 3 (Chapter 4)
Sarah, 72, recently sold her home and received a large sum of money. She needs to supplement her current retirement income immediately and wants to start receiving monthly payments as soon as possible, ideally within the next few months. Which type of annuity would best meet Sarah's immediate income needs?
- A) Flexible Premium Deferred Annuity.
- B) Single Premium Immediate Annuity (SPIA).
- C) Equity-Indexed Deferred Annuity.
- D) Variable Deferred Annuity.
Show answer & explanation
Answer: B
Sarah has a large lump sum (Single Premium) and needs income immediately (within one year). A Single Premium Immediate Annuity (SPIA) is designed for this exact purpose, converting a lump sum into an immediate, regular income stream. Deferred annuities would delay payments, and flexible premium annuities involve multiple contributions over time, neither of which fits her immediate need.
Question 4 (Chapter 4)
Mr. Henderson is considering an annuity and prioritizes safety and predictable income. He wants a guaranteed interest rate on his principal and stable, fixed payments during the annuitization phase, without exposure to stock market fluctuations. Which type of annuity would be most appropriate for Mr. Henderson?
- A) Variable Annuity.
- B) Equity-Indexed Annuity.
- C) Fixed Annuity.
- D) Market Value Adjusted Annuity.
Show answer & explanation
Answer: C
Mr. Henderson's desire for a guaranteed interest rate, stable fixed payments, and no exposure to market fluctuations are all hallmarks of a Fixed Annuity. The principal is held in the insurer's general account, and the insurer bears the investment risk. Variable annuities expose the annuitant to market risk, and equity-indexed annuities, while offering a minimum guarantee, also link returns to an index, introducing some variability.
Question 5 (Chapter 4)
A client, an experienced investor, is interested in an annuity that offers the potential for higher returns by investing in sub-accounts tied to the stock market. However, they understand that this also means accepting investment risk and that the value of their annuity could fluctuate. What type of annuity is this client describing, and what additional license would the agent need to sell it?
- A) Fixed Annuity; no additional license needed.
- B) Equity-Indexed Annuity; a Series 6 or 7 FINRA license.
- C) Variable Annuity; a Series 6 or 7 FINRA license.
- D) Immediate Annuity; a Series 6 or 7 FINRA license.
Show answer & explanation
Answer: C
Annuities that offer potential for higher returns through investment in sub-accounts (separate accounts) tied to the stock market, and where the annuitant bears the investment risk, are Variable Annuities. Due to their nature as securities, selling variable annuities requires the agent to hold a securities license, such as a FINRA Series 6 or 7, in addition to their state life insurance license. Fixed and Equity-Indexed annuities do not require a securities license, and an immediate annuity refers to the timing of payouts, not the investment design.
Question 6 (Chapter 4)
Emily purchases an annuity that guarantees a minimum interest rate, but also offers the potential for additional interest credits based on the performance of the S&P 500 index. She understands there might be caps on gains and participation rates, but she appreciates the downside protection. What type of annuity has Emily purchased?
- A) Fixed Annuity.
- B) Variable Annuity.
- C) Equity-Indexed Annuity (EIA).
- D) Immediate Annuity.
Show answer & explanation
Answer: C
Emily's annuity combines features of both fixed and variable annuities: a minimum guaranteed interest rate (like a fixed annuity) with the potential for additional interest based on an equity index (like the S&P 500), subject to caps and participation rates. This describes an Equity-Indexed Annuity (EIA), also known as a Fixed Indexed Annuity (FIA). Fixed annuities do not link to an index, and variable annuities have no minimum guarantee and direct market exposure.
Practice Questions 7-12: Phases, Payout Options and Beneficiaries
Accumulation against annuitisation, and what each payout option buys. Life only pays the most and stops at death; period certain protects the beneficiary; joint and survivor protects a spouse. The exam usually asks who receives what after somebody dies.
Question 7 (Chapter 4)
A client is in the accumulation phase of her deferred annuity. Which of the following activities is characteristic of this phase?
- A) The annuitant begins receiving regular income payments.
- B) The contract value grows tax-deferred through interest or investment gains.
- C) The annuitant irrevocably converts the cash value into a stream of income.
- D) The insurance company determines the payout amount based on life expectancy.
Show answer & explanation
Answer: B
During the accumulation phase, the annuitant makes premium payments, and the contract's value grows, typically on a tax-deferred basis. No income payments are received during this phase. Receiving income payments and the conversion of cash value into an income stream are characteristics of the annuitization phase.
Question 8 (Chapter 4)
After years of contributing to his deferred annuity, David decides to begin receiving income payments. He wants the highest possible monthly payout for himself, understanding that payments will cease entirely upon his death, with no remaining value for beneficiaries. Which annuitization option should David select?
- A) Life with 10-Year Period Certain.
- B) Joint and Survivor (100%).
- C) Life Only (Straight Life).
- D) Life with Refund.
Show answer & explanation
Answer: C
The Life Only (or Straight Life) annuitization option provides the highest possible monthly payout because it guarantees payments only for the life of the annuitant, ceasing entirely upon their death, with no provisions for beneficiaries. Options like Life with Period Certain, Joint and Survivor, or Life with Refund would result in lower monthly payments because they include guarantees or provisions for others, reducing the risk to the insurer.
Question 9 (Chapter 4)
Which annuity payout option produces the HIGHEST periodic income payment, assuming all other factors (age, premium, interest rate) are equal?
- A) Life with 20-Year Period Certain.
- B) Joint and 100% Survivor.
- C) Life Only (Straight Life).
- D) Life with Refund.
Show answer & explanation
Answer: C
Life Only has no guarantees beyond the annuitant's life, so the insurer bears the least risk and pays the highest periodic amount. Any guarantee — period certain, refund, or a second life — forces the insurer to pay longer on average, which lowers each individual payment. Rank from highest to lowest payment: Life Only > Life with Refund > Life with Period Certain > Joint and Survivor. This ranking is a high-frequency exam topic.
Question 10 (Chapter 4)
Lisa, age 70, selects a Life with 20-Year Period Certain payout. She lives to age 95 (25 years after annuitization). When do her payments stop?
- A) At age 90, when the 20-year period certain ends.
- B) At her death (age 95), because payments continue for the longer of her life or 20 years.
- C) At age 85, the midpoint of the period certain.
- D) Payments would have stopped when she turned 90 and resumed only if a beneficiary claimed them.
Show answer & explanation
Answer: B
Life with Period Certain pays for the LONGER of the annuitant's lifetime OR the certain period. Lisa lived 25 years past annuitization, which is longer than the 20-year certain period, so payments continue until her death at age 95. The period certain only matters if she dies BEFORE the 20 years end — then her beneficiary collects the remainder. This 'longer of' rule is a frequent exam trap; many candidates incorrectly think payments stop at the end of the certain period.
Question 11 (Chapter 4)
Henry annuitizes under a Life with 10-Year Period Certain option and dies in year 4. His beneficiary, his daughter, will receive:
- A) Nothing — period certain options have no death benefit.
- B) Payments for the remaining 6 years of the period certain.
- C) A lump-sum equal to 100% of the original premium.
- D) Payments for the rest of her own life.
Show answer & explanation
Answer: B
Under Life with Period Certain, if the annuitant dies before the certain period ends, the beneficiary receives the remaining scheduled payments for that period. Henry's death in year 4 leaves 6 years remaining (10 minus 4) of guaranteed payments to his daughter. Payments do not continue for her life (that would be Joint and Survivor), and there is no lump-sum return-of-premium guarantee under Period Certain (that's Life with Refund).
Question 12 (Chapter 4)
Mr. and Mrs. Chen elect a Joint and 50% Survivor annuity at $4,000/month. Mr. Chen dies first. What will Mrs. Chen receive going forward?
- A) $4,000/month for the rest of her life.
- B) $2,000/month for the rest of her life.
- C) $4,000/month for 10 years, then nothing.
- D) A lump-sum payment equal to half the original premium.
Show answer & explanation
Answer: B
Joint and Survivor options name a survivor percentage (commonly 100%, 75%, or 50%) that applies to the surviving annuitant after the first annuitant dies. With 50% survivor, Mrs. Chen receives 50% of the original $4,000 = $2,000/month for the rest of her life. Joint and 100% Survivor would have continued the full $4,000. The lower survivor percentages produce higher initial joint payments because the insurer's expected payout is reduced.
Practice Questions 13-18: Surrender Charges, Crediting and Suitability
The parts that exist to protect the client. Surrender charges decline on a schedule, indexed crediting runs the participation rate before the cap, and the TDI suitability rule governs what a producer may recommend to an older client with limited liquid assets. A licence limitation appears here too: a fixed indexed annuity is not always within a life-only licence.
Question 13 (Chapter 4)
Robert, age 60, surrenders his 4-year-old deferred annuity worth $100,000. The contract's surrender charge schedule starts at 7% in year 1 and declines by 1% each year. The contract allows a 10% annual free withdrawal. What surrender charge applies if he withdraws the entire account value?
- A) A 7% charge on the full $100,000.
- B) A 4% charge on $90,000 (the amount above the 10% free corridor).
- C) A 3% charge on $100,000 with no free withdrawal allowed on surrender.
- D) No charge, because surrender charges only apply in years 1-3.
Show answer & explanation
Answer: B
Surrender-charge schedules typically decline each year. Starting at 7% in year 1 and dropping 1% annually, year 4 is 7% - 3% = 4%. The free withdrawal corridor (10% of account value, here $10,000) is exempt from surrender charges, leaving $90,000 subject to the 4% charge. Surrender charges compensate the insurer for early termination during the period the insurer is amortizing acquisition costs.
Question 14 (Chapter 4)
An equity-indexed annuity has a participation rate of 70% and a cap rate of 8%. The S&P 500 returns 15% during the crediting period. What interest will be credited to the annuity?
- A) 15% (the full index return).
- B) 10.5% (70% of 15%).
- C) 8% (capped).
- D) 0% (the cap was exceeded so no credit applies).
Show answer & explanation
Answer: C
Apply the participation rate first: 70% of 15% = 10.5%. Then apply the cap: 10.5% exceeds the 8% cap, so the credit is limited to 8%. The cap is an absolute ceiling on credited interest regardless of how the participation rate calculates. Exceeding the cap does not zero out the credit — it simply caps it. This compound application of participation rate then cap is a classic FIA exam scenario.
Question 15 (Chapter 4)
A client decides to surrender their fixed deferred annuity early, during a period when current interest rates have risen significantly since they purchased the annuity. The surrender value they receive is lower than expected due to an adjustment based on market conditions. What contractual feature likely caused this reduction?
- A) A standard surrender charge.
- B) A Market Value Adjustment (MVA).
- C) A decreased participation rate.
- D) A cap rate reduction.
Show answer & explanation
Answer: B
A Market Value Adjustment (MVA) is a feature in some fixed annuities that adjusts the surrender value based on changes in market interest rates since the annuity was purchased. If interest rates rise, the MVA typically reduces the surrender value to compensate the insurer for the lower-yielding assets they hold. While a standard surrender charge might also apply, the scenario specifically mentions an adjustment based on market conditions, which is the definition of an MVA. Participation and cap rates are features of equity-indexed annuities, not fixed annuities in this context.
Question 16 (Chapter 4)
Under the Texas Department of Insurance (TDI) Suitability in Annuity Transactions Rule, what is the primary responsibility of a licensee when recommending an annuity to a consumer?
- A) To recommend the annuity with the highest commission for the licensee.
- B) To ensure the consumer's assets are fully invested in annuities.
- C) To make a recommendation that is based on the consumer's needs, objectives, and financial situation.
- D) To guarantee a specific return on investment for the consumer.
Show answer & explanation
Answer: C
The TDI Suitability in Annuity Transactions Rule mandates that licensees must make recommendations that are suitable for the consumer, meaning they must be based on a careful consideration of the consumer's needs, objectives, and financial situation. Recommending based on commission or ensuring full investment are unethical and not compliant. Guaranteeing a specific return is generally not possible or permissible, especially with variable products, and goes against the principle of suitability.
Question 17 (Chapter 4)
An agent is meeting with a 78-year-old client who has limited liquid assets, relies on Social Security for most of her income, and expresses a strong need for immediate access to funds for potential medical emergencies. The agent recommends a long-term deferred annuity with significant surrender charges. Under Texas regulations, what is the most likely issue with this recommendation?
- A) The agent failed to explain the tax benefits of a deferred annuity.
- B) The recommendation is likely unsuitable given the client's age and liquidity needs.
- C) The agent did not offer a variable annuity option.
- D) The client's age makes her ineligible for any annuity product.
Show answer & explanation
Answer: B
Under the TDI Suitability in Annuity Transactions Rule, a recommendation must align with the client's needs and financial situation. A 78-year-old client with limited liquid assets and a need for immediate access to funds for emergencies would likely find a long-term deferred annuity with significant surrender charges unsuitable, as it ties up capital for an extended period and penalizes early withdrawals. The agent's recommendation does not meet the client's liquidity needs or age considerations. Age alone does not make one ineligible, and offering a variable annuity might be even less suitable if the client is risk-averse.
Question 18 (Chapter 4)
Carlos, a life-only licensed agent in Texas, meets with a client interested in a Fixed Indexed Annuity (FIA) that credits interest based on the S&P 500. Carlos does not hold a FINRA Series 6 or 7. Can he legally sell this product?
- A) No, because any product linked to a market index is a security requiring a Series 6 or 7.
- B) Yes, because FIAs are legally classified as fixed annuities, not securities, and require no securities license.
- C) Only if the client signs a waiver acknowledging the absence of a securities license.
- D) No, FIAs require a Series 63 in addition to the life license.
Show answer & explanation
Answer: B
A Fixed Indexed Annuity is legally a type of fixed annuity. The insurer bears the investment risk and the principal is protected by a minimum guaranteed interest rate, so the SEC and FINRA do not treat it as a security. A life license alone is sufficient. This is a very common exam trap because FIAs are tied to a market index, which fools candidates into thinking a securities license is required. Variable annuities (separate account, annuitant bears market risk) are the only annuity type requiring a Series 6 or 7.
The Annuity Mistakes That Cost Marks
Applying the cap before the participation rate. The index gain is multiplied by the participation rate first, and the cap limits the result. Reversing the order gives a number that is offered as an answer.
Choosing life only when a beneficiary is mentioned. Life only does produce the highest payment, and it produces nothing at all for anybody after the annuitant dies. If the scenario introduces a spouse or a child, it is telling you the answer is not life only.
Assuming period certain payments stop at the end of the period. Life with period certain pays for life; the certain period only guarantees a minimum for the beneficiary. Someone who outlives it keeps being paid.
Treating suitability as advice. Under the TDI rule the producer has to have reasonable grounds, based on the client's actual financial situation and needs, before recommending. A scenario with an elderly client, limited liquidity and a long surrender schedule is not asking your opinion.
All nine chapters are audio lessons — chapter 1 is free, no signup. The heavier blocks have their own sets: life policy types, health insurance, policy provisions and Texas insurance law.
Question counts and content weighting come from the Pearson VUE Texas examination content outline. Read September 2026.
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