Annuity Fundamentals and Types Flashcards

What is the primary purpose of an annuity?

Answer: To generate lifetime income through periodic payments

An annuity is designed to provide a steady stream of income, typically during retirement, by distributing payments over time.

Which type of annuity provides a guaranteed, fixed payment amount?

Answer: Fixed annuity

A fixed annuity provides predictable payments by offering a guaranteed interest rate and set payouts.

What is the main characteristic of a variable annuity?

Answer: Payments vary with investment performance

A variable annuity’s payments fluctuate based on the performance of underlying investment options, exposing the annuitant to market risk.

How does an indexed annuity differ from a variable annuity?

Answer: Indexed annuities offer market participation with downside protection

Indexed annuities provide returns based on a market index with some protection from market losses, while variable annuities have direct exposure to market risks.

Which of the following best describes an immediate annuity?

Answer: Payments begin shortly after purchase

An immediate annuity begins making payments soon after the contract is purchased, typically within a year, and is used for retirement income.

Which annuity type allows tax-deferred growth until withdrawals begin?

Answer: Deferred annuity

A deferred annuity allows the investor to accumulate funds on a tax-deferred basis, with taxes applied only upon withdrawals.