What is a key characteristic of annuities?

Annuities are primarily designed as a financial product that allows individuals to accumulate funds over a period of time, with the intention of providing income in the future, typically for retirement. This accumulation of funds can be achieved through regular contributions or a single lump-sum payment. The emphasis on accumulating funds highlights the purpose of an annuity as a tool for long-term financial planning and security.

In many cases, an individual invests money into an annuity to grow their savings, which is often done with the benefits of tax-deferred growth, meaning that individuals won’t immediately pay taxes on the earnings until they withdraw funds during retirement. This makes option C the most accurate representation of what defines an annuity, distinguishing it from other financial products that may focus more on immediate payout benefits or other purposes.

Additionally, while some annuities may offer death benefits, such as returning the initial investment to beneficiaries, this is not a defining characteristic of all annuities. Annuities often do require a single payment or a series of payments for funding, but they can also be structured for flexible payment plans. When it comes to taxation, annuities do have tax implications, especially regarding withdrawals and gains, so the statement suggesting no taxation implications doesn’t accurately