What is true about Immediate Annuity payments?

What is true about Immediate Annuity payments?

• A. They begin within one year from purchase
• B. They begin after five years
• C. They begin only upon retirement
• D. They begin when the policy is surrendered

Answer: (A)

Immediate annuities convert a lump sum into a stream of payments that start soon after purchase. Because the goal is to provide income promptly, the first payment is made within one year from the purchase date. This differentiates them from deferred annuities, where payments begin after a deferral period. The notion of payments starting only upon retirement describes a retirement-focused use that’s typically deferred, not immediate. And starting payments when the policy is surrendered doesn’t align with how annuities work, since surrender ends the policy rather than triggering a payout stream.

Immediate annuities convert a lump sum into a stream of payments that start soon after purchase. Because the goal is to provide income promptly, the first payment is made within one year from the purchase date. This differentiates them from deferred annuities, where payments begin after a deferral period. The notion of payments starting only upon retirement describes a retirement-focused use that’s typically deferred, not immediate. And starting payments when the policy is surrendered doesn’t align with how annuities work, since surrender ends the policy rather than triggering a payout stream.