Difficulty: Easy

Average Score: 87%

An Immediate annuity can be recognized by which of the following features?

Rationale

Payout begins one payment period after purchase.

An immediate annuity is characterized by its payment structure, where the payouts commence almost immediately after the initial investment, typically within one payment period. This feature distinguishes it from other types of annuities that require a waiting period before disbursements begin.

A (Payout begins one payment period after purchase.) CORRECT

This choice accurately describes an immediate annuity, which is designed to start making payments right after the purchase, often within a month or at the start of the next payment cycle.

B (Payout begins several years later.) YOUR ANSWER

This option describes a deferred annuity, where payments are scheduled to begin at a future date, often several years after the purchase. Immediate annuities, by contrast, do not have this feature, as they are meant to provide immediate income.

C (Only an annual payout period will apply.) YOUR ANSWER

This statement is incorrect because immediate annuities can be structured with various payout frequencies, including monthly, quarterly, or annually. Limiting it to only annual payouts does not accurately represent the flexible payout options available with immediate annuities.

D (The annuitant must be in good health.) YOUR ANSWER

While health can impact the terms of some annuities, it is not a defining feature of immediate annuities. These annuities can be purchased by individuals regardless of their health status, and payouts are not contingent upon being in good health.

Conclusion

Immediate annuities are uniquely defined by their characteristic of starting payouts shortly after purchase, making option A the only correct choice. Other options describe features of different types of annuities or inaccurately limit the structure of immediate annuities. Understanding this distinction is crucial for individuals considering various annuity products for retirement planning or income generation.

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