New Jersey Life Producer Practice Exam

When Elisabeth retires and buys an annuity from which she starts to receive payments one month later, what type of annuity does she have?

1. Deferred annuity

2. Flexible annuity

3. Immediate annuity

4. Irrevocable annuity

The correct answer is: Immediate annuity

Elisabeth's situation illustrates the characteristics of an immediate annuity since she begins to receive payments one month after purchasing the annuity. An immediate annuity typically requires the annuitant to start receiving payments relatively soon, often within the first payment cycle following the purchase, which can be as short as one month. This type of annuity is designed for individuals who want to convert a lump sum into a stream of income right away, making it ideal for those who are retiring and looking for immediate income to support their cost of living. In contrast, a deferred annuity is one in which payments and benefits do not begin until a later time, typically years after the investment. Therefore, because Elisabeth starts receiving payments shortly after her purchase, her annuity does not fall into this category. Flexible annuities refer to products that allow policyholders to adjust premium payments and may involve a combination of immediate and deferred options, but that does not apply to the specific nature of the payment schedule in this scenario. Lastly, an irrevocable annuity would refer to the status of the contract, indicating that it cannot be altered once established, but this is not relevant to the timing of payment commencement. This reinforces that Elisabeth holds an immediate annuity, making the answer