Washington Life Producer Practice Exam

What is the primary reason for buying an annuity?

1. Short-term investment

2. Provide future economic security

3. Tax avoidance

4. Debt settlement

The correct answer is: 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 offer a steady income stream, often for retirement. They help individuals manage the risk of outliving their savings by ensuring that they receive regular payments over a specified period or for the rest of their lives. When people enter retirement or face significant financial milestones, they often seek guaranteed income sources to support their living expenses. Annuities can be particularly appealing because they can provide such income regardless of market conditions, thus offering stability and peace of mind. This assurance can be vital for financial planning, especially when considering factors like inflation, healthcare costs, and unexpected expenses. While it’s true that annuities can have tax advantages—like tax deferral on earnings until withdrawal—the primary focus remains on their role in providing sustained income for future needs.