Arizona Life and Health Practice Exam

When Ron purchased an immediate, straight life fixed annuity, what can he expect regarding his benefit payments?

1. They will increase over time according to inflation

2. They will vary based on the stock market's performance

3. They will remain a constant dollar amount for the duration of the annuity period

4. They will be paid out as a one-time lump sum

The correct answer is: They will remain a constant dollar amount for the duration of the annuity period

When Ron purchases an immediate, straight life fixed annuity, he can expect that his benefit payments will remain a constant dollar amount for the duration of the annuity period. This characteristic is inherent to fixed annuities, which provide a predetermined payment schedule that does not change over time. Unlike options that suggest variability in payments, such as increasing payments based on inflation or fluctuations aligned with the stock market, the straight life fixed annuity guarantees a stable income stream. This can provide valuable predictability and security for annuity holders, as they can plan their finances with a clear understanding of their cash flow needs. The notion of a one-time lump sum payout is also incorrect because a straight life fixed annuity is structured to pay out income over a period, typically the lifetime of the annuitant, rather than a singular payment. Thus, the choice indicating a constant dollar amount best reflects how this type of annuity functions.