West Virginia State Life Insurance Practice Exam

Which of the following is true about a flexible premium deferred annuity?

1. Contributions must be made at regular intervals

2. Payments begin immediately

3. It allows for variable contributions

4. It cannot be converted to a lifetime annuity

The correct answer is: It allows for variable contributions

A flexible premium deferred annuity is designed to allow policyholders the flexibility to make contributions at varying amounts rather than requiring fixed premium payments at regular intervals. This characteristic is particularly beneficial for individuals whose financial situations may change over time, allowing them to contribute more during periods of financial stability and less during times of constraint. Given that the focus of this question is on the flexible premium nature of the annuity, this flexibility in contributions is central to its appeal. It provides investors the ability to adjust their investments in response to their personal financial circumstances and goals, thereby maximizing their savings potential over time. In contrast, other characteristics such as requiring regular contributions, immediate payments, or restrictions on converting to a lifetime annuity do not accurately reflect the nature of a flexible premium deferred annuity. It is important for individuals considering this type of annuity to understand its flexible contribution structure, as it aligns with personal financial planning strategies.