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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Products

Meera, aged 45, plans to buy an immediate annuity. Which feature best describes an immediate annuity compared with a deferred annuity?

An immediate annuity starts paying income soon after a lump sum purchase price is paid, usually within a year. A deferred annuity, in contrast, has an accumulation phase of premiums before payouts begin. This makes immediate annuities suited to people already at retirement.

  1. APayouts begin shortly after a lump-sum purchase price is paid, typically within a yearCorrect
  2. BPayouts begin only after an accumulation period of regular premiums
  3. CPayouts are made only on death of the annuitant
  4. DPayouts are linked to equity index returns with a capital guarantee lapse

Explanation

An immediate annuity is bought with a single purchase price and starts paying income at once (within the next payment period, usually up to a year). A deferred annuity has an accumulation phase first. The other options describe unrelated features.

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