AD Banker Comprehensive Practice Exam

What does 'Annuity Period' refer to?

1. Determining the cost basis of an annuity

2. Time the annuity accumulates interest

3. Period subject to premature withdrawal penalties

4. Time during which payments are made to the annuitant

The correct answer is: Time during which payments are made to the annuitant

The term 'Annuity Period' specifically refers to the timeframe during which payments are made to the annuitant. This period follows the accumulation phase if the annuity is structured in two stages: the accumulation phase (when funds are built up) and the distribution phase (when payouts begin). During the annuity period, the annuitant receives regular payments according to the terms established in the annuity contract. This phase can vary in length depending on the specifics of the contract and the choices made by the annuitant, such as whether they have chosen a fixed-period payout or lifetime payouts. The other options involve different aspects of annuities. For instance, determining the cost basis is related to how the initial investment is calculated, which is not the main focus of the annuity period itself. Meanwhile, the time the annuity accumulates interest pertains to the earlier phase of the annuity before disbursements begin. Lastly, while the possibility of premature withdrawal penalties might be a factor during various points in an annuity's life, it does not define the annuity period directly.