Rhode Island Life Insurance Practice Exam

What type of annuity did N buy that guarantees a payment of $2,000/month starting at age 70?

1. Immediate annuity

2. Fixed deferred annuity

3. Variable annuity

4. Indexed annuity

The correct answer is: Fixed deferred annuity

The correct choice is a fixed deferred annuity, as it is designed to provide a stream of income at a future date, in this case, starting at age 70. A fixed deferred annuity allows the policyholder to accumulate funds over time, which can then be converted into regular payments after a defined period. In this situation, N has purchased an annuity that will start disbursing payments of $2,000 per month, indicating that N is opting for a secure, predictable income in retirement. The deferred aspect means that the payments do not begin immediately but will instead start at a later age, which is characteristic of fixed deferred annuities. Other types of annuities, such as immediate annuities, begin payouts almost immediately after the initial premium is paid, which does not align with N's situation of starting payments at age 70. A variable annuity features fluctuating payments that depend on the performance of investment options selected within the annuity, which would not guarantee a fixed payment. Indexed annuities can include some level of variability since they are linked to a stock market index, thus lacking the certainty of fixed payouts one would expect from a fixed deferred annuity.