What are the two phases of an annuity?

Prepare for the Alaska Life Insurance Exam with our quiz. Use interactive flashcards and multiple-choice questions, with hints and explanations provided for each. Get confident and ready to ace your test!

The correct answer identifies the two main phases of an annuity as accumulation and annuitization. During the accumulation phase, the owner pays into the annuity, either through a lump sum payment or a series of contributions. This phase is focused on building the investment over time, where funds grow tax-deferred until withdrawal.

Once the owner decides to begin receiving payouts, the annuity enters the annuitization phase. This phase converts the accumulated value into a stream of income, which can be structured in various ways, such as receiving payments for a set number of years, for the lifetime of the annuitant, or a combination of both.

Understanding these phases is crucial for consumers as it helps in planning for retirement, ensuring they have a clear strategy for both their contributions and the eventual distribution of funds. The other choices do not accurately represent the defined stages of an annuity in the way the accumulation and annuitization phases do.

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