Massachusetts Life Producer Practice Exam

Which of the following would NOT typically use an immediate annuity?

1. A parent saving for a child's education

2. A retiree looking for steady income

3. An individual seeking to convert a lump sum into immediate cash flow

4. An investor seeking to defer taxes

The correct answer is: A parent saving for a child's education

An immediate annuity is designed to provide a stream of income that starts almost immediately after a lump sum payment is made to the insurance company. This financial product is typically suited for individuals who need reliable income right away. The correct answer pertains to a scenario where immediate income is not the primary objective. A parent saving for a child's education would usually invest in options that grow over time, such as education savings accounts or college funds, rather than an immediate annuity. This is because the goal is to accumulate funds for future expenses, not to turn a lump sum into immediate income. Immediate annuities are more aligned with situations where individuals are seeking to create a steady stream of income rather than pursuing a long-term savings goal. In contrast, retirees looking for steady income, individuals converting a lump sum into immediate cash flow, and investors seeking to defer taxes typically have needs that align well with the features and benefits of an immediate annuity.