Florida 2-15 Life, Health and Variable Annuity AgentGeneral Knowledge of Life InsuranceHard
A 45-year-old client has a substantial amount in a traditional IRA. They plan to retire at age 60 and want to ensure their retirement income is protected from market fluctuations. They are also concerned about outliving their savings. Which annuity option, if purchased at retirement, would provide guaranteed income for life and protect against longevity risk?
- AVariable Annuity with a Living Benefit Rider
- BSingle Premium Deferred Annuity (SPDA)
- CFixed Indexed Annuity
- DImmediate Annuity with a Life Income Payout Option
Show answer & explanationAnswer & explanation
Correct answer: D. Immediate Annuity with a Life Income Payout Option
An Immediate Annuity (SPIA or DIA) with a Life Income payout option (e.g., Straight Life or Life with Period Certain) is designed to convert a lump sum into guaranteed income payments that last for the annuitant's entire life, addressing both market fluctuation concerns (if it's a fixed immediate annuity) and longevity risk.
Why the other options are wrong
- A. A Variable Annuity carries market risk, even with a living benefit rider, it doesn't offer the same level of guaranteed income protection from market fluctuations as a fixed immediate annuity.
- B. An SPDA is an accumulation vehicle, not an income payout option that guarantees income for life starting immediately.
- C. A Fixed Indexed Annuity is an accumulation product that offers market participation with principal protection, but it does not inherently provide immediate guaranteed lifetime income.
Immediate Annuity (Life Income)
An annuity purchased with a single premium that begins paying income immediately (or within one year) and is structured to provide payments for the annuitant's entire life, regardless of how long they live.
- Converts lump sum to guaranteed income
- Payments start immediately (or within 1 year)
- Protects against longevity risk
- Can be fixed (no market risk) or variable (market risk)
Memory trick: Guaranteed income for life, no market fright.