Primerica Life Producer Practice Test

What type of annuity is purchased when payments begin two months after a single premium payment?

1. Deferred annuity

2. Immediate annuity

3. Variable annuity

4. Fixed annuity

The correct answer is: Immediate annuity

In the context of annuities, an immediate annuity typically requires that payments begin shortly after a lump sum investment is made. Generally, this type of annuity begins making periodic payments within one year of the initial premium payment. However, the term "immediate" in common usage can also apply to those that commence payments within a relatively short time frame, even as soon as two months after the premium is paid. When a single premium payment is made and the stipulation is that payments start shortly thereafter—specifically, in this case, two months—it aligns with the characteristics of an immediate annuity. This designation indicates that the contract will begin disbursing benefits to the policyholder after a very brief delay, thereby effectively serving its purpose of providing quick access to income. In contrast, a deferred annuity would involve a longer waiting period before payments commence, which would not apply to the scenario outlined. Variable and fixed annuities refer to the investment structure and payout options but do not determine the timing of when payments begin. Thus, considering the definition and structure of immediate annuities, the choice indicating payments that start shortly after a single premium aligns accurately with the definition of an immediate annuity.