South Carolina Insurance Practice Exam

Kristi purchases an annuity that will pay her husband an income for 15 years. If he dies, this income will become payable to their children for the remainder of the period. Kristi has what kind of annuity?

1. Immediate annuity

2. Deferred annuity

3. Temporary annuity certain

4. Lifetime annuity

The correct answer is: Temporary annuity certain

The appropriate characterization for Kristi's annuity is a temporary annuity certain. This type of annuity guarantees income payments for a specified period, which in this case is 15 years. Regardless of whether her husband or children are receiving payments, the annuity ensures that the income continues for the entire designated timeframe, which aligns with the concept of a temporary annuity certain. The aspect of the annuity providing payments to the children if the husband dies within that 15-year period further emphasizes its certain nature—there is a guarantee of payments for the full duration. The payments do not depend on the lifespan of the husband, distinguishing it from lifetime annuities, which pay until the annuitant's death. This understanding clarifies the context of other options. An immediate annuity begins making payments right away, while a deferred annuity starts payments at a future date. A lifetime annuity would provide income for the duration of someone's life, which is not what Kristi purchased since it is linked to a fixed 15-year term.