Question

What is true about deferred annuity?
A. It is an annuity when the payments are made at the end of the payment period.
B. It is an annuity when the payments are made at the beginning of the payment period.
C. It is an annuity when the payments are made at the middle of the payment period.
D. None of the above

Answer 1

Hint: A deferred annuity is a contract with an insurance company that ensures to pay the owner a regular income, or a lump sum, at some future date. Investors use deferred annuities to supplement their other retirement income, such as Social Security. Investors can delay payments from a deferred annuity indefinitely unlike an immediate annuity, which starts annual or monthly payments almost immediately.

Complete step by step answer:
To find the correct statement about deferred annuity, we must know what it is.
A deferred annuity is a contract with an insurance company that ensures to pay the owner a regular income, or a lump sum, at some future date. Investors use deferred annuities to supplement their other retirement income, such as Social Security.
Investors can delay payments from a deferred annuity indefinitely unlike an immediate annuity, which starts annual or monthly payments almost immediately.
By using a deferred annuity, there are several options. These include adding funds to the account to increase the annuity’s value, taking lump-sum withdrawals as needed, transferring assets to a different financial institution, cashing out the annuity, converting the annuity into a stream of payments at a later date and leaving the assets to earn interest over time.
Hence, deferred annuity is an annuity when the payments are made at the end of the payment period.

So, the correct answer is “Option A”.

Note: Do not get confused with deferred annuity and immediate annuity. An immediate payment annuity is a contract between an individual and an insurance company that pays the owner a guaranteed income starting almost immediately.