AD Banker Comprehensive Practice Exam

Which allows immediate payouts to an annuitant?

1. Deferred annuity

2. Immediate annuity

3. Variable annuity

4. Indexed annuity

The correct answer is: Immediate annuity

The immediate annuity is designed to provide immediate payouts to the annuitant, beginning shortly after the purchase of the annuity. This type of annuity converts a lump sum payment from the annuitant into a stream of income that starts within a year of the purchase, often as soon as the next payment cycle. This makes immediate annuities particularly appealing to individuals seeking quick access to retirement income or those who want to convert their savings into a regular paycheck immediately. In contrast, a deferred annuity does not begin making payments until some time in the future, allowing the invested funds to grow tax-deferred until withdrawals are desirable. Variable annuities also allow for deferred payments, as they invest premiums in different subaccounts, with payouts beginning at a later date based on the investment performance. Indexed annuities, while they may have an element of immediate payout features depending on their structure, generally still involve a surrender period or accumulation phase before payouts can commence. Therefore, the immediate annuity is distinctly characterized by its provision of immediate income to the annuitant, making it the correct choice in this context.