PSI Life Exam Practice Test

When does a deferred annuity begin payments?

1. At the end of the initial contribution period

2. After reaching a specified age

3. After the initial premium payment

4. At the end of the fiscal year

The correct answer is: At the end of the initial contribution period

A deferred annuity begins payments at the end of the accumulation phase, which is typically referred to as the initial contribution period. During this phase, the holder makes contributions to the annuity, and those funds grow on a tax-deferred basis. Once this period concludes, the annuity enters the distribution phase where payments to the annuitant commence. It's essential to understand that the specified timing for payment initiation can vary based on the terms of the annuity contract. However, the common characteristic of deferred annuities is that they do not begin making payments until a future date, particularly at the end of the initial contribution period. This allows the investment inside the annuity to accumulate value and achieve growth before payouts start. In this context, the other options do not accurately capture the timing of payments for deferred annuities. For instance, while reaching a specified age can trigger a distribution for some retirement products, it does not specifically define the start of payments for a standard deferred annuity. Similarly, the initial premium payment relates to the accumulation phase rather than the initiation of payments. Lastly, payments starting at the end of the fiscal year is not a standardized trigger for payments in deferred annuities; the schedule is generally defined by the terms of