South Carolina Life and Health Practice Exam

What key aspect triggers the start of payments in an immediate annuity?

1. Upon completion of the health assessment

2. After the first premium has been paid

3. When the contract is signed

4. After a waiting period of one year

The correct answer is: After the first premium has been paid

In an immediate annuity, the key aspect that triggers the start of payments is the payment of the first premium. When an individual purchases an immediate annuity, they typically pay a lump sum premium upfront, which then activates the annuity contract. Upon making this initial payment, the insurance company begins disbursing regular income payments to the annuitant almost immediately, often within a month. This immediate conversion of the premium into a stream of income is the primary function of immediate annuities, making the timing of the premium payment critical for the initiation of benefits. The other options discussed do not align with the mechanism of immediate annuities; for instance, a health assessment is generally not a prerequisite for starting an immediate annuity, nor does signing the contract itself trigger payments before the premium is paid. Additionally, immediate annuities do not involve extended waiting periods, such as one year, as the intent is to provide income without delay right after the premium payment is made.