South Carolina Life Insurance Practice Exam

What is a common reason a person would choose a deferred annuity?

1. To receive immediate benefits

2. To accumulate funds for retirement

3. To provide life insurance coverage

4. To access funds yearly

The correct answer is: To accumulate funds for retirement

A deferred annuity is specifically designed to allow individuals to accumulate savings over time, typically for retirement purposes. Investors can contribute funds to the annuity, which grow on a tax-deferred basis until they are withdrawn, usually during retirement when the individual may be in a lower tax bracket. This feature makes deferred annuities an attractive option for those looking to build a long-term financial strategy. Choosing a deferred annuity aligns perfectly with the goal of accumulating funds for retirement, as it provides a structured way to save and grow one's assets without immediate tax implications. This option encourages disciplined saving and offers the potential for a guaranteed income stream later in life, which is a fundamental reason individuals select this type of product. In contrast, the other options either suggest immediate access to benefits, which is not characteristic of deferred annuities, or focus on purposes outside retirement savings, such as life insurance. Therefore, the choice of a deferred annuity as a means to accumulate funds for retirement stands out as the most fitting reason.