Which contract promises to pay the owner a guaranteed minimum income every year for as long as the individual lives?

Rationale

A life annuity.

A life annuity guarantees the owner a minimum income for the duration of their lifetime, providing financial security regardless of how long they live. This type of contract is specifically designed to ensure a steady income stream until death, distinguishing it from other financial products.

A (A life annuity.) CORRECT

This option accurately describes the financial product that guarantees a minimum income for the lifetime of the owner. A life annuity ensures that payments continue as long as the individual is alive, making it distinct and relevant to the question asked.

B (An annuity certain.) YOUR ANSWER

An annuity certain provides guaranteed payments for a specified period, regardless of whether the individual is alive or not. Unlike a life annuity, it does not extend payments for the lifetime of the owner, making it unsuitable for ensuring lifelong income.

C (A whole life policy.) YOUR ANSWER

A whole life policy is a type of insurance that provides coverage for the insured's entire life and includes a cash value component. While it offers a death benefit, it does not guarantee minimum income payments during the insured's lifetime, thus failing to meet the criteria specified in the question.

D (A survivorship policy.) YOUR ANSWER

A survivorship policy is designed to pay out a death benefit upon the death of the second insured individual, often used in estate planning. It does not provide any guaranteed income during the lifetimes of the insured parties, which makes it irrelevant to the question about guaranteed income.

Conclusion

In summary, a life annuity is the correct choice as it promises a guaranteed minimum income for the owner's lifetime. Other options, including annuity certain, whole life policies, and survivorship policies, do not offer the same financial assurance of income throughout the individual's life. Understanding these distinctions is crucial for making informed financial decisions regarding retirement and income planning.

Which contract promises to pay the owner a guaranteed minimum income every year for as long as the individual lives?

A life annuity.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test