A contract that provides income for life is known as what?

• A. Pension
• B. Annuity
• C. Bond
• D. Mutual Fund

Answer: (B)

Understanding contracts that guarantee lifetime income helps you see why this is annuity. An annuity is an agreement with an insurer where you fund it, and in return you receive payments for as long as you live (or for a specified period). That lifetime payment feature is what makes it the go-to term for income you can’t outlive.

A pension is a retirement benefit provided by an employer or government; while it can pay for life, it’s not the same personal contract you buy as an annuity. A bond is a loan to a borrower that pays interest and returns principal at a set date, not a guaranteed stream of income for life. A mutual fund is a pooled investment, not a contract that guarantees lifetime cash flow.

So, the contract designed to provide income for life is an annuity.