Colorado Life Producer License Practice Test

When does an immediate annuity start making payments?

1. After a one-year waiting period

2. At the time of annuity purchase

3. Within 12 months of purchase

4. Only at retirement age

The correct answer is: Within 12 months of purchase

The correct answer is that an immediate annuity starts making payments within 12 months of purchase. Immediate annuities are designed to begin disbursing payments to the annuitant almost right away, typically within a year of the purchase date. This feature is a defining characteristic of immediate annuities, distinguishing them from deferred annuities, which accumulate funds and start payments at a later date according to the agreed-upon schedule. When someone purchases an immediate annuity, they are essentially exchanging a lump sum of money for regular income payments, which typically commence after a very short waiting period, often as soon as one month or up to 12 months post-purchase. This timeline provides individuals with a means of converting their savings into predictable income almost immediately, meeting their financial needs without delay. In this context, the other options do not accurately describe the functionality of immediate annuities. The first option implies a waiting period that is generally not applicable since immediate annuities are designed for quick payouts. The fourth option suggests that payments only begin at retirement age, which is not inherent to immediate annuities, as they can be purchased by individuals of all ages. The second option, stating payments begin at the time of purchase, might seem close