Which type of annuity is purchased with a single lump-sum payment and begins paying monthly installments within the first year?

Which type of annuity is purchased with a single lump-sum payment and begins paying monthly installments within the first year?

• A. Deferred annuity
• B. Indexed annuities
• C. Immediate annuity
• D. Fixed annuity

Answer: (C)

The key idea is when payouts begin after funding. If you buy an annuity with a single lump sum and start receiving monthly installments within the first year, you’re dealing with an immediate annuity. The defining feature of this type is that the payout starts promptly after the purchase, typically right away or within a short period. Deferred annuities delay all payouts to a future date, often years down the road. Indexed annuities describe how interest is credited (based on an index) and can be structured as either immediate or deferred, but the question’s timing points to immediate. Fixed annuities describe the stability of payments (guaranteed amount) and can be either immediate or deferred, but again, the crucial factor here is the quick start of payments.

The key idea is when payouts begin after funding. If you buy an annuity with a single lump sum and start receiving monthly installments within the first year, you’re dealing with an immediate annuity. The defining feature of this type is that the payout starts promptly after the purchase, typically right away or within a short period. Deferred annuities delay all payouts to a future date, often years down the road. Indexed annuities describe how interest is credited (based on an index) and can be structured as either immediate or deferred, but the question’s timing points to immediate. Fixed annuities describe the stability of payments (guaranteed amount) and can be either immediate or deferred, but again, the crucial factor here is the quick start of payments.