South Carolina Life and Health Practice Exam

What is an annuity primarily used to provide?

1. Retirement income

2. Home insurance coverage

3. Health benefits

4. Life insurance benefits

The correct answer is: Retirement income

An annuity is primarily used to provide retirement income, making it a key financial product for those looking to secure a steady stream of income during their retirement years. Annuities are contracts with insurance companies that allow individuals to invest a lump sum of money or make a series of payments in exchange for periodic disbursements in the future. This is particularly beneficial for individuals seeking to guarantee income during retirement since it can help supplement Social Security and pension income. The structure of an annuity makes it an effective tool for managing retirement finances, as it can be set up to provide income for a specific period or for the lifetime of the individual. This can help retirees maintain their standard of living without the concern of outliving their savings. The various types of annuities, including fixed, variable, and indexed annuities, offer different investment options and levels of risk, allowing individuals to choose the type that best fits their financial goals and risk tolerance related to retirement planning.