Which of the following is a feature of a single-premium deferred annuity?

Rationale

A lump-sum deposit is a feature of a single-premium deferred annuity.

A single-premium deferred annuity is funded with a one-time lump-sum payment, which then grows on a tax-deferred basis until the payout phase begins. This structure is essential for establishing the annuity's future income stream.

A (Immediate income) YOUR ANSWER

Immediate income is characteristic of immediate annuities, not deferred annuities. In a single-premium deferred annuity, the income payouts begin at a later date, after the accumulation phase. Therefore, immediate income does not apply here.

B (Lump-sum deposit) CORRECT

A single-premium deferred annuity is specifically funded by a single, upfront payment, which is the defining feature of this type of annuity. This lump-sum deposit allows the annuity to grow over time through interest or investment returns until the policyholder decides to start receiving payments.

C (Guaranteed death benefit equal to face amount) YOUR ANSWER

While some annuities may offer death benefits, a single-premium deferred annuity does not necessarily guarantee a death benefit equal to the face amount. The death benefit may vary based on the terms of the contract, and it often depends on the account value at the time of death rather than being a fixed amount.

D (No surrender charges) YOUR ANSWER

Surrender charges are common in many annuities, including single-premium deferred annuities, especially if funds are withdrawn before a specified period. Thus, the claim that there are no surrender charges does not hold true for this type of annuity.

Conclusion

A single-premium deferred annuity is characterized by its requirement for a lump-sum deposit, allowing for tax-deferred growth until the annuitant chooses to start receiving payments. Other features, such as immediate income, guaranteed death benefits, and surrender charges, do not accurately describe this type of annuity. Understanding these distinctions helps consumers make informed decisions about their retirement planning and financial strategies.

Which of the following is a feature of a single-premium deferred annuity?

A lump-sum deposit is a feature of a single-premium deferred annuity.

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