Texas General Lines — Life, Accident, Health and HMOLife InsuranceHard
A client purchased an annuity with a principal sum of $100,000. They chose a Straight Life annuity payout option. The annuity company calculates their monthly payment to be $600. After receiving payments for 10 years, the client passes away. What amount, if any, will be paid to a beneficiary?
- A$28,000
- BThe remaining principal balance minus payments received.
- C$0
- D$100,000
Show answer & explanationAnswer & explanation
Correct answer: C. $0
A Straight Life (or Pure Life) annuity provides the highest possible periodic income payment because it guarantees payments for the annuitant's lifetime, but ceases all payments upon the annuitant's death, regardless of how much has been paid out. There is no death benefit or refund to a beneficiary.
Why the other options are wrong
- A. Incorrect. This implies a refund, which is not part of a Straight Life annuity.
- B. Incorrect. This describes a refund annuity option, not a Straight Life annuity.
- D. Incorrect. This implies the full principal is paid, which is characteristic of a refund annuity, not Straight Life.
Straight Life Annuity Payout
An annuity payout option that provides the highest possible income payments for the annuitant's lifetime, but ceases all payments upon their death, with no benefits to a beneficiary.
- Provides the maximum income per payment.
- Payments guaranteed for the annuitant's entire life.
- No payments continue to a beneficiary after death.
- Annuitant accepts the risk of dying early and 'losing' remaining principal.
Memory trick: Straight Life: Live Long, Get Most, Die Empty