What describes an annuity?

What describes an annuity?

• A. A one-time payment made to a beneficiary
• B. A fixed sum of money paid periodically, typically for life
• C. A savings account for retirement
• D. A insurance payout after death

Answer: (B)

An annuity is primarily characterized as a financial product that provides a fixed sum of money paid periodically, often for the lifetime of the annuitant. This structure allows individuals to receive a steady income stream, which can be especially beneficial during retirement when they may not have a regular paycheck. Annuities are designed to help manage the risk of outliving one's savings, making them a popular choice for those looking to secure financial stability in their later years. In contrast to other choices, a one-time payment made to a beneficiary refers to a life insurance policy payout, which differs fundamentally from the periodic nature of annuities. A savings account for retirement, while beneficial for accumulating funds, does not guarantee periodic payments and involves different mechanisms of growth and access. Lastly, an insurance payout after death typically pertains to life insurance, as it provides a lump sum upon the policyholder's passing rather than ongoing payments. Thus, the defining characteristic of an annuity as a consistent income stream differentiates it from these other financial constructs.

An annuity is primarily characterized as a financial product that provides a fixed sum of money paid periodically, often for the lifetime of the annuitant. This structure allows individuals to receive a steady income stream, which can be especially beneficial during retirement when they may not have a regular paycheck. Annuities are designed to help manage the risk of outliving one's savings, making them a popular choice for those looking to secure financial stability in their later years.

In contrast to other choices, a one-time payment made to a beneficiary refers to a life insurance policy payout, which differs fundamentally from the periodic nature of annuities. A savings account for retirement, while beneficial for accumulating funds, does not guarantee periodic payments and involves different mechanisms of growth and access. Lastly, an insurance payout after death typically pertains to life insurance, as it provides a lump sum upon the policyholder's passing rather than ongoing payments. Thus, the defining characteristic of an annuity as a consistent income stream differentiates it from these other financial constructs.