Arizona Life and Health Practice Exam

The main purpose of an annuity is to:

1. Provide a death benefit to the beneficiaries.

2. Invest funds for high returns.

3. Create a stream of income.

4. Offer tax-free growth.

The correct answer is: Create a stream of income.

The main purpose of an annuity is to create a stream of income. This financial product is designed primarily for individuals who want to ensure they have a reliable source of income, especially during retirement. Annuities can provide a consistent payout over a specified period or for the lifetime of the annuitant, thereby helping to manage the risk of outliving one's savings. While providing a death benefit may be a feature of some annuities, particularly those structured to pay out a beneficiary, it is not the primary function of the product. Similarly, although individuals may seek investments that offer high returns, the focus of an annuity is on income stability rather than high yield. Tax benefits can be an attractive aspect of annuities, allowing funds to grow tax-deferred until withdrawal, but this is a secondary benefit compared to their main purpose of delivering income. Thus, the correct answer highlights the essential role that annuities play in financial planning, particularly for ensuring a steady flow of income during retirement years.