What is the primary function of an immediate life annuity?

An immediate life annuity is designed to provide a stream of income payments to an individual, often starting almost immediately after the purchase of the annuity. This income is typically paid out for the remainder of the individual's lifetime, thereby converting a single lump sum of money into a steady series of payments. This structure is particularly beneficial for retirees, as it ensures that they have a reliable source of income to cover their living expenses without the risk of outliving their savings.

The concept behind an immediate life annuity is rooted in risk management, as it addresses longevity risk—where individuals face the risk of outliving their financial resources. By opting for this type of annuity, individuals can find peace of mind knowing that they will receive regular payments, no matter how long they live after retirement.

In contrast, the other options represent different financial instruments or functions that do not align with the primary role of an immediate life annuity. For example, a lump sum payment at retirement is not characteristic of an annuity's function, as it refers to a single large disbursement rather than a series of smaller, scheduled payments. Guaranteed payouts for a fixed term may refer to certain types of annuities but not specifically to an immediate life annuity, which focuses on