South Carolina Life Insurance Practice Exam

What distinguishes a single premium payment option from a flexible premium payment option in deferred annuities?

1. The amount paid into the annuity

2. The timing of payments

3. The type of investor

4. The frequency of payments

The correct answer is: The timing of payments

The distinction between a single premium payment option and a flexible premium payment option in deferred annuities primarily revolves around the timing of payments. In a single premium payment option, the investor makes one lump-sum payment to fund the annuity. This means that the entire investment is placed into the annuity at one specific point in time. The benefits and growth of the annuity commence based on the value of that singular payment. In contrast, a flexible premium payment option allows the investor to make multiple payments into the annuity over time, rather than a single upfront payment. This gives the investor the flexibility to adjust their contributions based on their financial circumstances or goals, contributing more in some periods and less in others. Therefore, the timing of the payments is the key element that differentiates these two options. The single premium requires a one-time payment, while the flexible premium allows for a series of payments over time, thus providing added versatility for investors.