What is an immediate annuity?

What is an immediate annuity?

• A. An annuity that begins payments after one year
• B. An annuity purchased with a small payment
• C. An annuity that starts payments immediately after purchase
• D. An annuity for corporate beneficiaries only

Answer: (C)

An immediate annuity is a financial product designed to provide income payments to the annuitant shortly after it is purchased, typically starting within one payment interval, which can range from a month to a year. This type of annuity is often used by individuals who are seeking a quick stream of income, such as retirees who wish to convert a lump sum of money into a reliable income source right away. In contrast, choices related to delayed payments or specific payment amounts do not accurately capture the defining characteristic of an immediate annuity. Options that restrict the product to particular conditions about payment timing or beneficiaries fail to encompass the essence of what an immediate annuity represents, which is its immediate commencement of payments following the investment.

An immediate annuity is a financial product designed to provide income payments to the annuitant shortly after it is purchased, typically starting within one payment interval, which can range from a month to a year. This type of annuity is often used by individuals who are seeking a quick stream of income, such as retirees who wish to convert a lump sum of money into a reliable income source right away.

In contrast, choices related to delayed payments or specific payment amounts do not accurately capture the defining characteristic of an immediate annuity. Options that restrict the product to particular conditions about payment timing or beneficiaries fail to encompass the essence of what an immediate annuity represents, which is its immediate commencement of payments following the investment.