South Carolina Insurance Practice Exam

Which type of annuity requires premium payments that vary from year to year?

1. Fixed premium deferred annuity

2. Single premium immediate annuity

3. Flexible premium deferred annuity

4. Total premium annuity

The correct answer is: Flexible premium deferred annuity

The type of annuity that requires premium payments that vary from year to year is a flexible premium deferred annuity. This annuity allows the policyholder to make contributions at varying amounts and frequencies, rather than requiring a fixed sum at regular intervals. This flexibility is particularly beneficial for individuals whose financial situations may change, allowing them to increase or decrease their contributions based on their needs and capabilities. In a flexible premium deferred annuity, the contributions can be made on a consistent schedule or sporadically, which means that there’s potential for individuals to invest more during profitable years and less in tighter financial periods. This structure can lead to potentially greater accumulation of funds over time due to the compounded growth of the invested premiums, tailored to the policyholder’s specific financial situation. Other types of annuities, like fixed premium deferred annuities, require a specified premium amount to be paid consistently, while a single premium immediate annuity involves a one-time payment made upfront. The term "total premium annuity" is not a standard classification in the industry and does not accurately describe a recognized product. Thus, the flexibility and adaptability of contribution amounts in a flexible premium deferred annuity clearly define why it is the correct choice.