Question 49

People commonly purchase an annuity to protect against the risk of outliving their financial resources.

An annuity is primarily designed to provide a steady income stream for individuals, particularly in retirement, thereby mitigating the risk of outliving their financial resources.

A) dying too soon.

While some annuities may offer death benefits, their main purpose is not to insure against dying too soon. This option does not align with the primary function of annuities, which is to ensure financial stability over a longer period.

B) becoming uninsurable.

This option refers to a different financial concern related to health and insurance. Annuities are not intended to address insurability issues; rather, they focus on providing income over time, making this answer incorrect.

C) outliving their financial resources.

This is the correct answer, as annuities are specifically structured to provide ongoing income that can last for the lifetime of the annuitant. This protects individuals from the risk of depleting their savings in retirement, which is a significant concern for many.

D) dying before their home mortgage is paid off.

This option is not relevant in the context of annuities, as they do not typically address mortgage repayment or the timing of death relative to mortgage obligations. Therefore, this is not a reason for purchasing an annuity.

Conclusion

The purchase of an annuity is fundamentally aimed at ensuring that individuals do not outlive their financial resources during retirement. While other options present various financial risks, they do not capture the primary intent of annuities, which is to offer security against the financial uncertainties of aging. Thus, Option C stands out as the definitive correct choice.