South Carolina Life Insurance Practice Exam

What is the main goal of an annuity?

1. To provide temporary life insurance coverage

2. To accumulate wealth for future spending

3. To provide a predictable income stream

4. To fund short-term financial goals

The correct answer is: To provide a predictable income stream

The main goal of an annuity is to provide a predictable income stream, particularly during retirement or at a stage when the policyholder seeks financial stability. Annuities are designed to convert a lump sum of money into regular payments, which can be structured to last for a specific period or for the lifetime of the annuitant. This predictable income can help individuals manage their finances more effectively by ensuring they have a reliable source of funds to cover living expenses and other costs. In contrast, temporary life insurance coverage is aimed at providing financial protection for a limited time rather than generating income. Accumulating wealth for future spending is more aligned with investment accounts or savings plans than with the primary purpose of annuities. While annuities can contribute to long-term financial goals, their primary function is to deliver steady, guaranteed income, distinguishing them clearly from products designed for short-term financial objectives.