Tennessee Insurance Practice Exam

What type of annuity can be purchased with one monetary deposit?

1. Deferred annuity

2. Immediate annuity

3. Variable annuity

4. Periodic annuity

The correct answer is: Immediate annuity

An immediate annuity is purchased with a single lump-sum payment, which is then transformed into a stream of income payments that begin almost immediately, typically within a month after the initial investment. This makes immediate annuities an attractive option for individuals looking to retire or those needing instant access to a steady income source. In contrast, a deferred annuity requires multiple payments over time or a single initial contribution, but the income payments begin at a later date, not immediately. Variable annuities allow the investment to grow based on the performance of selected investments, which may also involve a series of payments rather than a single deposit. Periodic annuities imply a series of payments made at regular intervals, rather than a one-time deposit. Therefore, the immediate annuity is the only option that begins payouts right away following a single monetary deposit.