West Virginia State Life Insurance Practice Exam

Which type of contract delivers payments to liquidate an estate through recurrent payments?

1. Life insurance policy

2. Annuity

3. Term insurance contract

4. Whole life insurance

The correct answer is: Annuity

An annuity is specifically designed to deliver a series of payments over time, which can be utilized to liquidate an estate or provide financial support during retirement or other phases of life. This characteristic of providing recurrent payments distinguishes annuities from other types of insurance and financial products. In the context of estate planning and management, an annuity can be beneficial as it offers a structured approach to distribute funds — typically over a predetermined period, which can help in meeting ongoing financial needs or settling obligations. This set structure can make financial management clearer and more predictable for beneficiaries. On the other hand, life insurance policies, including term and whole life, primarily provide a death benefit upon the insured's passing rather than recurrent payments intended for liquidity over time. While life insurance can ultimately contribute to an estate's value and benefit heirs, it does not inherently provide periodic payments like an annuity does. Thus, for situations where the aim is to provide liquid assets through regular payments over a specified period, the annuity is the most appropriate option.