Question

Which of the following is an example of an annuity? A) lump-sum payment made to a life insurance company that promises to make a series of equal payments later for some period of time B) An investment in a certificate of deposit (CD)

Answer 1

Answer:

The correct answer is letter "A": lump-sum payment made to a life insurance company that promises to make a series of equal payments later for some period of time.

Explanation:

An annuity is a payment made to an insurance company under the promise the insurance will make equally-distributed repayments to the policyholder at a specific period. The payments for the annuity are usually made in a lump-sum but they can be paid in small installments. When the repayments start immediately after the insured hires the policy, the insurance is called it is called an annuity due.