Tennessee Life Producer Practice Exam

Which of the following is an element of a Single Premium annuity?

1. Monthly contributions

2. Lump-sum payment

3. Annual renewals

4. Ongoing premiums

The correct answer is: Lump-sum payment

A Single Premium annuity is characterized by a one-time, lump-sum payment made to purchase the annuity. This initial payment is then invested by the insurance company to generate returns, which can be paid out to the annuitant at a future date, either as a lump sum or through periodic payments. The structure of a Single Premium annuity eliminates the need for ongoing contributions or premiums, which is what distinguishes it from other types of annuities that require regular payments, such as monthly contributions or ongoing premiums. This one-time investment allows for immediate accumulation of funds and can lead to a simpler management of the annuity, as no further payments are needed from the annuitant after the initial investment.