Question 54

Deferred annuities have longer accumulation periods.

Deferred annuities are designed to accumulate funds over a longer period before payouts begin, allowing the investment to grow tax-deferred until the individual is ready to receive payments.

A) Deferred annuities cover more lives.

This option is incorrect because the number of lives covered is not a distinguishing feature between deferred and immediate annuities. Both types can be structured to cover one or multiple lives depending on the contract terms.

B) Deferred annuities have no surrender charges.

This statement is also incorrect. Many deferred annuities may impose surrender charges if funds are withdrawn before a specified period, whereas immediate annuities typically do not have this feature since they begin payouts immediately.

C) Deferred annuities have longer liquidation periods.

While it might seem that deferred annuities have a longer period before liquidation starts, the term "liquidation" typically refers to the process of converting assets to cash. This option does not accurately capture the fundamental difference, which focuses on the accumulation phase rather than the liquidation phase.

D) Deferred annuities have longer accumulation periods.

This option is correct as deferred annuities allow for a longer accumulation phase where the individual can contribute funds and grow their investment before receiving payments. This is a key characteristic that differentiates them from immediate annuities, which start disbursing payments right away.

Conclusion

In summary, deferred annuities are defined by their longer accumulation periods, allowing for tax-deferred growth prior to distributions. All other options either misrepresent the characteristics of deferred annuities or address features that are not directly relevant to the core distinction between deferred and immediate annuities. Hence, option D is the definitive correct answer.