South Carolina Insurance Practice Exam

What is the primary reason for buying an annuity?

1. To provide tax shelter benefits

2. To provide future economic security

3. To ensure high liquidity

4. To achieve dividend growth

The correct answer is: To provide future economic security

The primary reason for buying an annuity is to provide future economic security. Annuities are designed as long-term financial products that guarantee a series of payments at regular intervals, typically during retirement. This structure allows individuals to create a steady income stream, which can be vital for maintaining their standard of living after they stop working. By opting for an annuity, a person is essentially ensuring that they have financial support through a predictable payout, thus fulfilling the goal of economic security in their later years. The other options, while having their own relevance in different contexts, do not align with the core purpose of annuities. Although tax shelter benefits are a consideration, they are not the primary motivating factor for most individuals seeking annuities. Similarly, annuities typically do not offer high liquidity, as funds are often tied up until disbursement begins, making immediate access to cash less feasible. Dividend growth is more applicable to investments like stocks, rather than the fixed nature of annuity payments, which focus on guaranteed income rather than growth through dividends.