South Carolina Life Insurance Practice Exam

An individual has a contract that provides income for life but is not a life insurance policy. What type of contract does this person have?

1. Term policy

2. Whole life policy

3. Straight life annuity

4. Universal policy

The correct answer is: Straight life annuity

The individual in question has a straight life annuity, which is designed to provide income for the lifetime of the annuitant, making it a suitable choice for someone looking to secure a guaranteed income stream until death. Unlike life insurance policies, which are primarily intended to provide a death benefit to beneficiaries, a straight life annuity converts a lump sum of money into a series of periodic payments for the annuitant's life. In a straight life annuity arrangement, the individual makes an initial investment, typically a lump-sum payment, and in return, they receive regular income payments that cease upon their death. This setup is beneficial for individuals who want to ensure they do not outlive their retirement savings, as it eliminates the risk of depleting their funds prematurely. This contract differs fundamentally from term and whole life policies, which focus on providing monetary benefits upon the policyholder's death. A term policy offers coverage for a specific period without accumulating any cash value, while a whole life policy provides coverage for the policyholder's entire life and builds cash value over time. Universal policies, similarly, are a form of permanent life insurance with flexible premiums and coverage amounts but still serve the primary purpose of life insurance rather than providing lifetime income. Therefore,