Which statement correctly contrasts an Immediate Annuity with a Deferred Annuity?

Which statement correctly contrasts an Immediate Annuity with a Deferred Annuity?

• A. Immediate annuity payments begin immediately after purchase; deferred annuity payments begin in the future.
• B. Immediate annuity defers payments; deferred annuity payments begin immediately.
• C. Both begin immediately; only the payment amounts differ.
• D. There is no difference in timing of payments.

Answer: (A)

The timing of the payout stream is what distinguishes these two products. An immediate annuity converts a lump sum into a guaranteed income stream that begins right after purchase, typically soon after funding the contract. A deferred annuity, on the other hand, accumulates value during a deferral period and starts making payments at a future date you choose. This setup means immediate annuities are used when you want income now, while deferred annuities provide time to grow the account and postpone income until later (often with tax-deferred growth inside the contract). The other statements confuse when payments start, so they don’t align with how these products are designed.

The timing of the payout stream is what distinguishes these two products. An immediate annuity converts a lump sum into a guaranteed income stream that begins right after purchase, typically soon after funding the contract. A deferred annuity, on the other hand, accumulates value during a deferral period and starts making payments at a future date you choose. This setup means immediate annuities are used when you want income now, while deferred annuities provide time to grow the account and postpone income until later (often with tax-deferred growth inside the contract). The other statements confuse when payments start, so they don’t align with how these products are designed.