California Life-Only & Accident and Health AgentLife InsuranceEasy
A 60-year-old individual is planning for retirement and purchases an immediate annuity. Which of the following statements about this annuity is TRUE?
- APayments will begin at a future date determined by the annuitant.
- BA lump sum payment is made to the insurer, and income payments start almost immediately.
- CThe annuity is funded with periodic payments over several years.
- DIt primarily focuses on accumulating funds for retirement without immediate distribution.
Show answer & explanationAnswer & explanation
Correct answer: B. A lump sum payment is made to the insurer, and income payments start almost immediately.
An immediate annuity is designed to start providing income payments to the annuitant very soon after it is purchased, typically within one year. It is funded with a single lump sum payment.
Why the other options are wrong
- A. This describes a deferred annuity, not an immediate annuity.
- C. This describes how a deferred annuity might be funded, not an immediate annuity.
- D. This describes the accumulation phase of a deferred annuity, not an immediate annuity which focuses on distribution.
Immediate Annuity
An annuity contract that begins making income payments to the annuitant within one year of purchase.
- Funded with a single lump sum premium.
- Payments start almost immediately (within 12 months).
- Designed for income distribution, not accumulation.
Memory trick: Immediate means income starts right now, deferred means income waits for later.