Utah Life Producer Practice Exam

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What does the term “annuitization” refer to?

  1. The process of funding an annuity

  2. The conversion of an annuity into periodic payments

  3. The withdrawal of funds from an annuity

  4. The selection of investment options within an annuity

The correct answer is: The conversion of an annuity into periodic payments

The term “annuitization” specifically refers to the process where an annuity is transformed into a stream of periodic payments to the annuitant. This typically occurs after the accumulation phase, where the owner has paid premiums into the annuity. Once the annuity is annuitized, the insurance company begins to make regular payments based on the agreed-upon terms, which can vary in duration and amount. The payments can be structured in different ways, such as for a fixed number of years or for the lifetime of the annuitant. Understanding this process is crucial for clients who want to receive income from their investment in an annuity, especially during retirement. This transformation is key to converting a potentially lump-sum investment into a predictable income stream, which many individuals rely upon in their financial planning.

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