California Life-Only & Accident and Health AgentLife InsuranceMedium
A 70-year-old retired client is looking for an investment that provides a guaranteed income stream for the rest of their life, regardless of how long they live, with no concern about leaving a death benefit to heirs. They also want to ensure the highest possible payout per dollar invested. Which annuity payout option would be most suitable?
- ARefund Annuity
- BJoint and Survivor
- CLife with Period Certain
- DLife Only
Show answer & explanationAnswer & explanation
Correct answer: D. Life Only
A Life Only annuity provides the highest periodic payout because payments cease entirely upon the annuitant's death, meaning the insurer takes on the full mortality risk and doesn't need to account for payments to a beneficiary.
Why the other options are wrong
- A. A Refund Annuity guarantees that at least the purchase price will be returned, either to the annuitant or beneficiaries, which also reduces the periodic payout.
- B. Joint and Survivor annuities cover two lives, significantly reducing the payout per annuitant to ensure payments continue for the survivor.
- C. Life with Period Certain guarantees payments for a minimum period, reducing the payout compared to Life Only.
Life Only Annuity Payout
An annuity payout option that provides the highest possible income stream to the annuitant for their lifetime, but all payments cease upon the annuitant's death, with no death benefit for beneficiaries.
- Highest periodic payout
- Payments stop at annuitant's death
- No payments to beneficiaries
Memory trick: Life Only, maximum income, then it's gone.