Arizona Life and Health Practice Exam

Which type of contract offers deferred taxation, flexible payments, a guaranteed interest rate, and death benefits equal to the cash value?

1. Fixed premium fixed annuity

2. Immediate annuity

3. Flexible premium fixed annuity

4. Variable annuity

The correct answer is: Flexible premium fixed annuity

The type of contract that offers deferred taxation, flexible payments, a guaranteed interest rate, and death benefits equal to the cash value is the flexible premium fixed annuity. This financial product allows the policyholder to make varying premium payments over time rather than a fixed amount. This flexibility is particularly advantageous for individuals whose financial situations may change, as they can adjust their contributions according to their current resources. Deferred taxation means that the earnings on the investment grow tax-deferred until withdrawals are made, which aligns with the tax benefits often desired by investors. The guaranteed interest rate provides a level of security, as it ensures that the money will grow at a predetermined rate, offering predictability in returns. Additionally, the death benefit feature that equals the cash value ensures that, in the event of the policyholder's death, the beneficiary will receive at least the same amount as what is accumulated in the account. This aspect makes this type of annuity appealing for those who want to provide for their beneficiaries while also enjoying the investment benefits during their lifetime. While other options might share certain characteristics found in the flexible premium fixed annuity, they do not combine all the specific features mentioned in the question, such as the flexible payment structure and the guaranteed interest component.