Arizona Life and Health Practice Exam

Which scenario is least appropriate for utilizing an immediate annuity?

1. Retiree seeking supplemental income

2. Individual purchasing a guaranteed income

3. Parent saving for a child's college

4. Investor looking for steady cash flow

The correct answer is: Parent saving for a child's college

An immediate annuity is designed to provide income payments that start shortly after a lump sum is paid to the insurer. This type of financial product is particularly suitable for individuals who are nearing or in retirement, needing a stream of income to support their living expenses, such as a retiree seeking supplemental income or an individual purchasing guaranteed income. The scenario involving a parent saving for a child's college expenses is the least appropriate for utilizing an immediate annuity. This situation typically requires a different investment strategy focused on growth over time, as the parent would need to accumulate savings to fund future educational expenses rather than receiving an immediate stream of income. Unlike the other options, which emphasize the need for immediate cash flow, saving for a child's education usually involves long-term financial planning, often using vehicles that allow for growth, such as 529 college savings plans or other investment accounts.