Florida 2-15 Life, Health and Variable Annuity AgentGeneral Knowledge of Life InsuranceMedium
A client purchased a deferred annuity ten years ago. They are now 62 years old and decide to annuitize the contract. Which of the following payout options would provide the highest monthly income for the annuitant, assuming all other factors are equal?
- AStraight Life Income
- BRefund Life Annuity
- CJoint and Survivor Annuity
- DLife with 10-Year Period Certain
Show answer & explanationAnswer & explanation
Correct answer: A. Straight Life Income
A Straight Life Income option provides the highest monthly income because it guarantees payments only for the annuitant's lifetime and stops upon their death, regardless of how soon that occurs, thus transferring the maximum risk to the annuitant.
Why the other options are wrong
- B. This option guarantees that the principal will be returned, which lowers the monthly income compared to straight life.
- C. This option covers two lives, significantly reducing the monthly payout to account for the longer potential payout period.
- D. This option guarantees payments for a minimum period, reducing the monthly payout compared to straight life.
Straight Life Income Annuity
An annuity payout option that provides the highest possible income payments for the annuitant's lifetime, but payments cease entirely upon their death, with no benefits for beneficiaries.
- Highest monthly payout.
- Payments stop at annuitant's death.
- No beneficiary benefits after annuitant's death.
Memory trick: Highest income means shortest guarantee.