Washington Life Producer 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. Level premium annuity

The correct answer is: Flexible premium deferred annuity

A flexible premium deferred annuity is designed to accommodate premium payments that can change in amount and frequency over time. This flexibility allows the policyholder to make contributions based on their financial situation or investment goals, making it suitable for individuals who may not have a consistent income or who want the opportunity to increase or decrease their payments according to their financial needs. By allowing varying premium payments, it can also help in the accumulation of a larger tax-deferred value over time, particularly advantageous for long-term retirement planning. In contrast, other types of annuities, such as a fixed premium deferred annuity, require consistent premium payments that do not change each year. A single premium immediate annuity involves a one-time payment and starts providing income immediately, while a level premium annuity has fixed payments over the duration of the contract. Each of these options lacks the flexibility offered by a flexible premium deferred annuity, making the latter the only choice that allows for varying premium payments.