Connecticut Life Producer Practice exam

How do annuities fundamentally differ from life insurance policies?

1. Annuities provide coverage until death

2. Annuities create an estate for the insured

3. Annuities liquidate an estate and pay income during life

4. Annuities only pay death benefits

The correct answer is: Annuities liquidate an estate and pay income during life

Annuities fundamentally differ from life insurance policies in that they are designed to liquidate an estate and provide income during the lifetime of the annuitant. An annuity functions as a financial product that converts a lump sum of money into a stream of income, which can be beneficial for individuals in retirement who need to ensure they have a consistent cash flow. Unlike life insurance, which primarily offers financial protection to beneficiaries upon the insured's death, annuities are structured to provide financial support and income while the individual is alive. This is pivotal for ensuring financial stability during retirement or other stages when income might be necessary. Annuities do not create a death benefit in the same way life insurance does; instead, they focus on distributing funds to the annuitant. Therefore, the essence of an annuity is in its purpose to liquidate assets and facilitate ongoing payments during a person's lifetime, differentiating it significantly from the objectives of life insurance policies, which safeguard against the financial consequences of an individual's death.