Florida 2-15 Life, Health and Variable Annuity AgentGeneral Knowledge of Life InsuranceEasy
A client is 45 years old and wants to purchase an annuity that will provide a guaranteed income stream for the rest of their life, starting immediately. They have a lump sum of money available. Which type of annuity would best fit their needs?
- AFlexible Premium Deferred Annuity (FPDA)
- BSingle Premium Deferred Annuity (SPDA)
- CVariable Deferred Annuity
- DSingle Premium Immediate Annuity (SPIA)
Show answer & explanationAnswer & explanation
Correct answer: D. Single Premium Immediate Annuity (SPIA)
A Single Premium Immediate Annuity (SPIA) is designed for clients who have a lump sum and want to begin receiving income payments immediately (typically within one year). It provides a guaranteed income stream for a specified period or for life.
Why the other options are wrong
- A. A Flexible Premium Deferred Annuity (FPDA) allows for multiple premium payments and defers income payments.
- B. A Single Premium Deferred Annuity (SPDA) involves a lump sum but defers income payments to a future date.
- C. A Variable Deferred Annuity allows for investment choices and defers income payments, not providing immediate income.
Single Premium Immediate Annuity (SPIA)
An annuity purchased with a single lump-sum payment that begins providing income payments to the annuitant immediately (typically within one year of purchase).
- Requires a single, lump-sum premium
- Income payments begin immediately or very soon (within 12 months)
- Provides a guaranteed income stream
- Used for immediate retirement income or converting a lump sum into reliable payments
- No accumulation period
Memory trick: Immediate means income starts NOW.