Connecticut Life Producer Practice exam

What are the two distinct periods of an annuity called?

1. Accumulation and distribution periods

2. Pay-in and payoff periods

3. Accumulation and annuity periods

4. Investment and withdrawal periods

The correct answer is: Accumulation and annuity periods

The two distinct periods of an annuity are accurately referred to as the accumulation period and the annuity period. The accumulation period is the time during which the investor makes contributions to the annuity, allowing the investment to grow through interest or investment returns. This phase can last for many years and represents the buildup of funds. Once the investor is ready to start receiving income, the annuity enters the annuity period, during which the insurance company begins to make periodic payments to the annuitant. This phase is crucial for individuals who rely on their annuities to provide a steady income stream, typically in retirement. Using terms like "pay-in" or "payoff" may describe aspects of the annuity but do not precisely define the standard periods used in annuity contracts. Similarly, "investment" and "withdrawal" or "distribution" periods convey related concepts but fail to encapsulate the specific terminology that is recognized in the insurance and financial industry concerning annuities. Thus, the terminology of accumulation and annuity periods highlights the essential characteristics and functions of the annuity structure.