Primerica Life Producer Practice Test

What are the two primary ways an annuity can be funded?

1. One-time contribution or continuous payouts

2. Single payment or periodic payments

3. Monthly payments or yearly contributions

4. Initial deposit or withdrawals

The correct answer is: Single payment or periodic payments

An annuity can be funded primarily in two ways: through a single payment or periodic payments. A single payment refers to a lump-sum contribution made at the outset to establish the annuity. This allows the annuity to begin accumulating interest or investment growth immediately. On the other hand, periodic payments involve making contributions at regular intervals, which can be monthly, quarterly, or annually. This option provides flexibility for individuals who may prefer to accumulate funds over time rather than invest a large sum all at once. By understanding these funding methods, individuals can choose an annuity structure that best fits their financial goals, whether that is maximizing early growth with a lump-sum investment or building up to the desired investment amount through ongoing contributions. This is vital for planning for retirement or future financial needs. The other options focus on terms that don’t accurately describe the funding mechanisms of an annuity, providing less clarity on how annuities are practically financed.