Which describes an Immediate Annuity?

Which describes an Immediate Annuity?

• A. An annuity purchased with a single premium, with payments beginning in the next period
• B. A deferred annuity with payments starting at retirement
• C. An annuity purchased with periodic payments over time
• D. An annuity where payments begin immediately at purchase

Answer: (C)

Immediate annuity means you convert a sum of money into a stream of payments that starts right away, with little or no accumulation period. It’s typically funded with a single premium paid at purchase, and payments begin immediately after that purchase. Among the descriptions, the one that matches this is the idea that payments begin immediately at purchase. Descriptions that talk about a delay (payments starting in the next period or at retirement) describe deferred timing, not an immediate start. Descriptions about paying in periodic installments to fund the contract describe the funding method, not when payments begin, so they don’t define an immediate annuity.

Immediate annuity means you convert a sum of money into a stream of payments that starts right away, with little or no accumulation period. It’s typically funded with a single premium paid at purchase, and payments begin immediately after that purchase. Among the descriptions, the one that matches this is the idea that payments begin immediately at purchase. Descriptions that talk about a delay (payments starting in the next period or at retirement) describe deferred timing, not an immediate start. Descriptions about paying in periodic installments to fund the contract describe the funding method, not when payments begin, so they don’t define an immediate annuity.