Texas Life Agent Practice Exam

What is the primary purpose of an immediate annuity?

1. To provide income starting right away

2. To accumulate savings over time

3. To protect against market losses

4. To invest in the stock market

The correct answer is: To provide income starting right away

The primary purpose of an immediate annuity is to provide income starting right away. An immediate annuity allows individuals to convert a lump sum of money into a stream of income that begins almost immediately, typically within one payment cycle of making the initial investment. This can be especially beneficial for retirees who need a reliable source of income to cover living expenses. This type of annuity is designed to offer financial security and predictability, ensuring that the individual receives regular payments for a specified period or for the remainder of their lifetime. Unlike options focused on accumulating savings or investments in the stock market, which typically involve a waiting period for returns or growth, an immediate annuity emphasizes immediate access to funds through regular disbursements.