Maryland Life and Health Insurance License Practice Exam

How soon can the benefit payments begin with a deferred annuity?

1. A minimum of 12 months after date of purchase

2. Immediately after the purchase

3. After 6 months from the date of purchase

4. 12 months after the policyholder reaches age 65

The correct answer is: A minimum of 12 months after date of purchase

The correct response indicates that benefit payments from a deferred annuity can begin a minimum of 12 months after the date of purchase. This reflects the fundamental characteristic of deferred annuities, which are designed to accumulate value over time before the payout phase begins. Typically, the delay allows the invested funds to grow through interest or investment gains before the annuitant starts receiving regular payments. Deferred annuities often have a surrender period during which withdrawals or payouts may be restricted. The 12-month minimum aligns with regulatory guidelines and industry practices, ensuring that the funds have sufficient time to grow, enhancing the eventual payout amount. Immediate payments can be associated with immediate annuities rather than deferred ones, which inherently wait for a designated period before disbursing benefits. Similarly, the shorter time frames mentioned, such as 6 months, do not align with standard practices for deferred annuities, which are structured for longer-term savings and investment. Additionally, tying benefit payments to the policyholder's age, such as age 65, is not a standard practice; benefits are generally determined based solely on the terms of the annuity contract and the time elapsed since purchase, rather than the annuitant's age.