PSI Life Exam Practice Test

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What is the period after an annuity purchase but before distributions begin called?

Distribution Phase
Accumulation Phase
Payment Phase
Investment Phase

The correct answer is: Accumulation Phase

The period after an annuity purchase but before distributions begin is referred to as the accumulation phase. During this time, the annuity owner makes contributions to the annuity, and those contributions grow on a tax-deferred basis. This phase is critical for preparing for the eventual payout phase, as it allows the investment to potentially increase in value through interest, dividends, or capital gains before the owner starts receiving payments. During the accumulation phase, the funds may be invested in various financial instruments, depending on the terms of the annuity. Ultimately, this phase is designed to optimize the growth of the investment before transitioning to the distribution phase, where withdrawals begin. Understanding this distinction helps to grasp how annuities function over time and the financial strategies associated with them.