Connecticut Life Producer Practice exam

What type of premium payment options are available in annuities?

1. Annual and semi-annual premiums

2. Single premium and periodic premiums

3. Only quarterly premiums

4. Flat-rate premiums

The correct answer is: Single premium and periodic premiums

In annuities, the two primary types of premium payment options are single premium and periodic premiums. A single premium involves making one lump-sum payment to purchase the annuity, which can be beneficial for individuals who have a significant amount of money to invest at once. This option allows for immediate growth of the investment and often leads to higher initial benefits. Periodic premiums, on the other hand, are where the purchaser makes regular contributions to the annuity over time, which can be on a monthly, quarterly, or annual basis. This approach is advantageous for individuals who may not have a large sum to invest initially but wish to build their investment gradually. Periodic payments can also allow for greater financial flexibility and affordability. The other options, such as annual and semi-annual premiums, while they can be valid options in certain contexts, do not encompass the full range of possibilities that annuities offer. Furthermore, the concept of flat-rate premiums does not accurately describe how annuity premiums are structured, as they are typically tied to the premium payment frequency rather than a flat rate.