Arizona Life and Health Practice Exam

Sylvia purchased an annuity for a specific amount from her inheritance. What type of annuity contract does this represent?

1. Variable annuity

2. Single premium deferred annuity

3. Immediate annuity

4. Flexible premium annuity

The correct answer is: Single premium deferred annuity

The selection of a single premium deferred annuity is appropriate because this type of annuity is purchased with a one-time lump sum payment, which aligns with Sylvia using an inherited amount. In a single premium deferred annuity, the investment grows on a tax-deferred basis until the owner decides to begin receiving payments at a future date. This predictability allows individuals like Sylvia to manage their retirement income effectively, as the payments can be scheduled to start at a later time, such as during retirement. Understanding the characteristics of a single premium deferred annuity highlights its role in long-term financial planning and the benefits it provides in terms of delayed payouts and tax deferral, making it a practical choice for someone looking to manage an inheritance.