Refund option — which statement correctly describes its feature?

Refund option — which statement correctly describes its feature?

• A. Payments stop at the annuitant's death
• B. Payments continue to the longer of life or until the original principal is paid, with payments continuing to a named beneficiary; otherwise, a lump sum to the beneficiary at death
• C. The contract terminates with no further benefits
• D. The payments are continued to a named beneficiary; otherwise, a lump sum payment of any remaining balance is made to the beneficiary at the annuitant's death

Answer: (D)

The refund option is all about protecting the principal for a beneficiary. With this choice, the annuity payments are made for the annuitant’s life, but if there is any remaining balance of the original investment when the annuitant dies, that remaining amount is paid to a named beneficiary as a lump sum. So the beneficiary inherits any unreturned principal rather than losing it. This makes it attractive for estate planning because it guarantees that what's left of the premium isn’t lost at death. In contrast, options that stop payments at death or terminate the contract with no payout don’t provide that return of remaining principal to a beneficiary. The idea here is the remaining value is preserved and transferred to the beneficiary, either as continued payments or, as stated, as a lump-sum balance at death. For example, if the original amount was 50,000 and the annuity has paid out 30,000 by the time of death, the remaining 20,000 would go to the beneficiary as a lump sum.

The refund option is all about protecting the principal for a beneficiary. With this choice, the annuity payments are made for the annuitant’s life, but if there is any remaining balance of the original investment when the annuitant dies, that remaining amount is paid to a named beneficiary as a lump sum. So the beneficiary inherits any unreturned principal rather than losing it. This makes it attractive for estate planning because it guarantees that what's left of the premium isn’t lost at death.

In contrast, options that stop payments at death or terminate the contract with no payout don’t provide that return of remaining principal to a beneficiary. The idea here is the remaining value is preserved and transferred to the beneficiary, either as continued payments or, as stated, as a lump-sum balance at death. For example, if the original amount was 50,000 and the annuity has paid out 30,000 by the time of death, the remaining 20,000 would go to the beneficiary as a lump sum.