What is a defining feature of annuity contracts?

• A. They guarantee principal and provide a fixed rate only
• B. They are contracts where the insurer promises periodic payments and offer tax-deferred growth
• C. They are investments that cannot be redeemed early
• D. They are not regulated by insurance authorities

Answer: (B)

Annuities are insurance contracts designed to convert premium payments into a reliable stream of payments, with earnings that grow tax-deferred inside the contract. The defining feature is that the insurer commits to making periodic payments to the owner, and the money inside the contract grows without current taxes until distribution. This combination—guaranteed or structured payments plus tax deferral—is what sets annuities apart from many other investment vehicles.

Other statements miss key realities: some contracts do allow surrender or early access with penalties, and not all annuities guarantee principal in every product type (for example, variable annuities involve investment risk). They are also regulated by insurance authorities, so the idea that they aren’t regulated is incorrect.