South Carolina Life Insurance Practice Exam

Which of the following is true about annuities?

1. Annuities provide immediate tax benefits

2. Payments can be made in a lump sum or installments

3. Annuities do not require a premium

4. Once an annuity is purchased, the premiums are non-refundable

The correct answer is: Payments can be made in a lump sum or installments

Payments can indeed be made in a lump sum or installments, making it a key characteristic of annuities. An annuity is a financial product that can be structured to accept a single payment upfront or multiple payments over time. This flexibility allows individuals to choose the payment method that best fits their financial situation or goals. In the context of annuities, a lump-sum payment may be suitable for those with substantial savings wanting to secure a future income stream. Conversely, installment payments can appeal to those preferring to invest gradually, allowing them to build a larger amount over time. This versatility makes annuities adaptable for various financial strategies and retirement planning. While the other options reference features that are not accurate regarding annuities, understanding that they can be funded through either method is crucial for anyone studying the functioning and structure of these financial products.