Life License Qualification Program (LLQP) Practice Exam

What type of annuity pays a guaranteed amount starting at a future date?

1. Fixed Period

2. Fixed Deferred

3. Fixed Immediate

4. Fixed Variable

The correct answer is: Fixed Deferred

The choice of a fixed deferred annuity is correct because it is specifically designed to provide a guaranteed income stream that begins at a predetermined future date, following a specified accumulation period. During the accumulation phase, the funds grow on a tax-deferred basis, and the annuitant may make contributions to the annuity during this time. When the specified future date arrives, the annuity converts to an income-paying phase, at which point the company starts making regular payments to the annuitant. This structure allows individuals to plan for retirement or other future financial needs, knowing that they will receive a fixed amount during the income phase. In contrast, a fixed period annuity typically provides income for a set number of years, without the guarantee of payments extending over the lifetime of the annuitant; a fixed immediate annuity pays income right away following the purchase without a waiting period; and a fixed variable annuity combines elements of both a fixed and variable approach, where payments can fluctuate based on the performance of the underlying investments.