Which statement describes an Immediate Annuity?

Which statement describes an Immediate Annuity?

• A. Purchased with periodic premiums and payments begin after 5 years
• B. It pays only until the annuitant's death
• C. Payments are guaranteed to increase with inflation every year
• D. Purchased with one lump-sum payment and payments begin within one year from purchase

Answer: (D)

An Immediate Annuity is defined by turning a lump-sum payment into a guaranteed income that begins within one year of purchase. The key idea is single premium funding with payments starting promptly, rather than later. This contrasts with deferred annuities, which are funded now but don’t pay out until a future date. The notion of payments lasting only until death isn’t the defining feature, since many annuities can pay for life or for a set period, and inflation-adjusted payments are optional features, not the basic description.

An Immediate Annuity is defined by turning a lump-sum payment into a guaranteed income that begins within one year of purchase. The key idea is single premium funding with payments starting promptly, rather than later. This contrasts with deferred annuities, which are funded now but don’t pay out until a future date. The notion of payments lasting only until death isn’t the defining feature, since many annuities can pay for life or for a set period, and inflation-adjusted payments are optional features, not the basic description.