Question 82

An Immediate Annuity will have a single premium.

An Immediate Annuity is typically funded with a single premium payment made at the outset of the contract, which then provides a series of income payments in return. This structure distinguishes it from other types of annuities that may involve multiple payments over time.

A) an increasing premium

An increasing premium would imply that the payments into the annuity grow over time, which is not characteristic of an Immediate Annuity. Instead, it requires a one-time payment, making this option incorrect in the context of Immediate Annuities.

B) a decreasing premium

A decreasing premium suggests that the payments would reduce over time, which contradicts the fundamental nature of an Immediate Annuity. This type of annuity does not involve a series of decreasing payments, thus making this option incorrect as well.

C) a single premium

A single premium is the defining feature of an Immediate Annuity, where the holder pays a lump sum at the start of the contract. This payment then guarantees a stream of income, confirming this option as the correct answer.

D) a level premium

A level premium implies consistent payments made over time, which does not apply to an Immediate Annuity. Since this type of annuity is funded by a one-time payment, the notion of level premiums does not apply, rendering this option incorrect.

Conclusion

The correct answer is C) a single premium, as this is the essential characteristic of an Immediate Annuity. The other options fail to accurately describe the funding mechanism of this type of annuity, either suggesting incorrect variations in premium structure or misrepresenting the payment model entirely.