Annuities✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
The fundamental purpose of an annuity is best described as protecting against the risk of:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
An annuity is the mirror image of life insurance. Life insurance protects against dying too soon by paying a death benefit to beneficiaries. An annuity protects against living too long by converting a lump sum into a stream of income the annuitant cannot outlive, usually for life. The annuity reverses the mortality risk pooling of life insurance: it is designed for the person who is concerned their accumulated funds will run out before they die.
Why the other options are wrong
- B) Premature death is the risk addressed by life insurance, which pays a death benefit to the insured's beneficiaries — the opposite of an annuity's purpose.
- C) Loss of income from disability is the domain of disability income insurance, a separate product line.
- D) Property loss from fire or theft is covered by property and casualty insurance, not by annuities.
Memory hook
Life insurance pays when you die too soon; an annuity pays when you live too long.