In an annuity, what does the purchaser do?

The purchaser of an annuity pays the insurer to invest funds, which is the essence of how annuities function. This transaction typically involves the individual making a lump sum payment or a series of payments to an insurance company. In return, the insurance company agrees to provide regular payments to the purchaser at a later date or upon reaching a specified event, such as retirement.

This choice emphasizes the investment aspect of annuities, where the insurer uses the funds for investment purposes. Over time, the invested amount may grow, and the returns are then used to fund the future payouts to the annuity holder.

In contrast, the other choices demonstrate misunderstandings about the nature of an annuity. Receiving immediate returns from investments does not typically apply, as the payments can be structured to start after a deferral period. Investing directly in mutual funds bypasses the intermediary role of an insurance company, which fundamentally defines annuities. Payment of premiums without coverage would contradict the purpose of an annuity, which is designed specifically to provide a financial benefit in the future. Therefore, the correct choice highlights the central role of investment within the framework of an annuity.