7
practice testMultiple Choice

Practice Test

Question 7 • Advanced Financial Algebra

Which factor is a disadvantage of an annuity?

Answer
A
tax-deferred growth of investments
B
guaranteed income for life
C
no limits on contributions
D
high penalties for early withdrawal

Explanation

A common disadvantage of an annuity is that withdrawing money before the contract allows can result in substantial surrender charges or tax penalties. Tax-deferred growth and the possibility of guaranteed lifetime income are benefits, while annuities generally do have contribution limits or contract restrictions.

AI-written and checked against the verified answer.

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