Massachusetts Life Producer Practice Exam

Which type of annuity typically involves making payments right away?

1. Deferred annuity

2. Immediate annuity

3. Variable annuity

4. Fixed indexed annuity

The correct answer is: Immediate annuity

An immediate annuity is designed for individuals who wish to start receiving payment right away, typically within a year of purchase. This type of annuity is primarily used to provide a guaranteed income stream immediately after a lump-sum investment is made. Investors often choose immediate annuities as a way to convert a portion of their retirement savings into predictable income, helping to ensure they have funds available for expenses as soon as they retire. In contrast, other types of annuities, like deferred annuities, involve a waiting period before payments begin. Deferred annuities accumulate value over time, allowing the investor to defer both the investment and tax obligations until the payout phase begins, which is usually years down the line. Variable and fixed indexed annuities can also serve to grow funds before payments begin, focusing on investment performance or market indices, respectively. Therefore, the nature of immediate annuities directly aligns with the immediate need for income, which is what makes this choice the correct answer.