Question 76

Lump-sum deposit is a feature of a single-premium deferred annuity.

A single-premium deferred annuity involves a lump-sum deposit made by the annuitant, which is invested and grows over time before any income payments begin.

A) Immediate income

This option is incorrect because a single-premium deferred annuity does not provide immediate income. Instead, it allows the annuitant to defer income until a later date, distinguishing it from immediate annuities that start payments right away.

B) Lump-sum deposit

This option is correct as a single-premium deferred annuity is funded by a one-time, lump-sum deposit. This initial investment accumulates interest over time until the annuitant decides to begin receiving payments.

C) Guaranteed death benefit equal to face amount

While some annuities may offer death benefits, a single-premium deferred annuity does not automatically guarantee a death benefit equal to the face amount. Benefits can vary based on the specific terms of the contract and are not a defining feature.

D) No surrender charges

This option is incorrect as many single-premium deferred annuities do impose surrender charges if the annuitant withdraws funds before a specified period. This feature is not universally applicable and can vary by contract.

Conclusion

The correct answer, a lump-sum deposit, is fundamental to the structure of a single-premium deferred annuity, as it distinguishes this product from others that have different funding methods. All other options either misrepresent the characteristics of this financial product or pertain to features that are not inherent to single-premium deferred annuities.