PSI Life Exam Practice Test

When does an immediate annuity generally start making payments to the annuitant?

1. Immediately upon purchase

2. One month from the purchase date

3. Three months from purchase

4. One year from purchase

The correct answer is: One month from the purchase date

An immediate annuity is designed to start payments to the annuitant very shortly after the initial investment is made. The typical structure of an immediate annuity dictates that payments begin either immediately at the time of purchase or within a very short timeframe subsequently. While in practice, the first payment of an immediate annuity often starts within weeks of the purchase—commonly at the end of the first month—it's essential to understand that the term "immediate" does not imply an exact timeframe but generally suggests a brief interval following the purchase. Many contracts indeed stipulate the first payment begins one month post-purchase, aligning closely with standard industry practices. This explanation highlights why immediate annuities are favored by individuals seeking a quick and regular income stream, as opposed to other types of annuities that may have a longer deferral period. The option stating payments begin one month from the purchase date aligns with this standard expectation in the industry.