Which type of annuity is typically NOT funded with minimal premiums?

Which type of annuity is typically NOT funded with minimal premiums?

• A. Deferred annuities
• B. Immediate annuities
• C. Retirement annuities
• D. Single-premium immediate annuities

Answer: (B)

Immediate annuities are typically funded with a substantial lump-sum payment rather than minimal premiums. This type of annuity is designed to start paying out income almost immediately after the initial investment is made. The investor usually provides a larger one-time payment to purchase the annuity, which is then converted into a stream of income that begins shortly thereafter. In contrast, deferred annuities can be funded with smaller, periodic premiums, allowing individuals to contribute over time before they start receiving payouts. Retirement annuities may also involve a combination of minimal or larger premium payments, depending on the structure chosen. Single-premium immediate annuities specifically require a single large payment to kick off income distributions immediately. Understanding these distinctions helps clarify why immediate annuities are characterized by substantial upfront contributions rather than minimal premium funding.

Immediate annuities are typically funded with a substantial lump-sum payment rather than minimal premiums. This type of annuity is designed to start paying out income almost immediately after the initial investment is made. The investor usually provides a larger one-time payment to purchase the annuity, which is then converted into a stream of income that begins shortly thereafter.

In contrast, deferred annuities can be funded with smaller, periodic premiums, allowing individuals to contribute over time before they start receiving payouts. Retirement annuities may also involve a combination of minimal or larger premium payments, depending on the structure chosen. Single-premium immediate annuities specifically require a single large payment to kick off income distributions immediately.

Understanding these distinctions helps clarify why immediate annuities are characterized by substantial upfront contributions rather than minimal premium funding.