Which statement best describes a feature of annuities that guarantee lifetime income?

Which statement best describes a feature of annuities that guarantee lifetime income?

• A. They are designed to replace life insurance
• B. They offer tax-free withdrawals
• C. They require no premium
• D. They can be used to guarantee an income for the rest of a person's life

Answer: (D)

Lifetime income guarantees come from choosing a payout option that ensures payments continue for as long as the annuitant lives. Annuities can be structured to provide income for the rest of the person’s life, regardless of how long they live, which is why this feature best describes their benefit. This is what makes annuities useful for providing retirement income. They are not meant to replace life insurance, since their primary purpose is to provide income rather than a death benefit, and withdrawals are generally taxed as ordinary income rather than tax-free. Also, most annuities require some premium funding to establish the contract, so the idea of “no premium” isn’t accurate.

Lifetime income guarantees come from choosing a payout option that ensures payments continue for as long as the annuitant lives. Annuities can be structured to provide income for the rest of the person’s life, regardless of how long they live, which is why this feature best describes their benefit. This is what makes annuities useful for providing retirement income. They are not meant to replace life insurance, since their primary purpose is to provide income rather than a death benefit, and withdrawals are generally taxed as ordinary income rather than tax-free. Also, most annuities require some premium funding to establish the contract, so the idea of “no premium” isn’t accurate.