PSI Ohio Insurance Practice Exam

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Study for the Ohio Insurance Test. Prepare with flashcards and multiple choice questions, each question accompanied by hints and explanations. Excel in your exam!

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What is a key characteristic of an annuity?

It is mainly used for providing life insurance coverage.
It provides income for a specified period or for the lifetime of the annuitant.
It has no tax implications until withdrawal.
It can only be purchased with a lump sum payment.

The correct answer is: It provides income for a specified period or for the lifetime of the annuitant.

Annuities are financial products designed specifically to provide a stream of income over a specified period or for the lifetime of the annuitant. This characteristic sets them apart from other financial products. This income can be especially beneficial for retirement planning, as it ensures that individuals have a consistent cash flow coming in after they stop working. While annuities can have certain tax advantages, such as tax-deferred growth until withdrawal, this does not encapsulate the primary purpose of an annuity. The option regarding tax implications does not fully convey the fundamental nature of the product. Similarly, the assertion that annuities are only purchasable through a lump sum is incomplete, as they can also be funded through a series of payments. Ultimately, the fundamental appeal of an annuity lies in its ability to convert a lump sum of money into a reliable source of income, either for a set time period or specific to the annuitant's lifetime. This characteristic is essential for individuals planning for financial security in retirement.