How can an annuity principal be created?

An annuity principal can be established through various methods of funding, which is why the correct answer is that it can be created by either immediate single premiums or periodic premiums.

When an individual opts for an immediate single premium, they provide a lump sum payment upfront to purchase the annuity, which starts providing income or benefits almost immediately. This method is straightforward and often favored by those who have a lump sum of money, such as from the sale of a home or an inheritance, that they want to convert into a stream of income.

On the other hand, periodic payments involve the buyer contributing a set amount of money at regular intervals over time (such as monthly or annually) to build the annuity's principal. This approach is beneficial for individuals who wish to save gradually, allowing them to accumulate a larger principal over time before ultimately accessing the annuity's benefits.

Both of these funding methods are valid and widely used, which is why they constitute the correct answer. The flexibility to choose between immediate funding through a lump sum or building the principal over time with periodic payments accommodates varying financial situations and goals for individuals looking to utilize annuities for retirement planning or income needs.