South Carolina Life Insurance Practice Exam

How does purchasing a flexible premium annuity differ in investment strategy compared to a single premium?

1. It allows payment adjustments based on market conditions

2. It requires a larger initial investment

3. It limits the investment to only one premium payment

4. It typically has lower fees

The correct answer is: It allows payment adjustments based on market conditions

Purchasing a flexible premium annuity allows for payment adjustments based on market conditions, making it a versatile investment strategy. Investors can contribute varying amounts at different times, depending on their financial situation and market circumstances. This flexibility is particularly advantageous for people who may want to increase their contributions when they have excess funds or reduce them during tighter financial periods. In contrast, a single premium annuity requires a one-time, lump-sum payment, which restricts the investor's flexibility in funding it over time. Since flexible premium annuities can adjust contributions, they provide a more dynamic approach to investment management, allowing for potentially advantageous positioning with regard to changing economic environments. The other options do not align with the nature of flexible premium annuities compared to single premium options. For instance, a flexible premium annuity does not mandate a larger initial investment or impose limitations to just one payment, and while fees can vary, being flexible in contributions does not inherently relate to lower fees as a characteristic.