Which annuity settlement option provides the largest monthly income payment?

Which annuity settlement option provides the largest monthly income payment?

• A. Life with period certain
• B. Pure life option
• C. Life with refund
• D. Life contingency option

Answer: (B)

A pure life (life-only) settlement option gives the largest monthly income because it pays for as long as the annuitant is alive and ends at death, with no guarantees to beneficiaries or refunds to recover the initial premium. Since there’s no obligation to continue payments beyond the annuitant’s death, the insurer can offer a higher monthly amount. Other options include guarantees or refunds that create obligations beyond the annuitant’s life. A guaranteed period guarantees payments for a minimum number of years to a beneficiary if the annuitant dies early, so funds must be set aside to cover those future payments, reducing the monthly amount. A refund option ensures the total amount paid equals the purchase price, so payments are adjusted downward to fund the potential refund. A life contingency or other guaranteed features similarly share the risk or extend payments to others, which lowers the monthly payment compared to pure life.

A pure life (life-only) settlement option gives the largest monthly income because it pays for as long as the annuitant is alive and ends at death, with no guarantees to beneficiaries or refunds to recover the initial premium. Since there’s no obligation to continue payments beyond the annuitant’s death, the insurer can offer a higher monthly amount.

Other options include guarantees or refunds that create obligations beyond the annuitant’s life. A guaranteed period guarantees payments for a minimum number of years to a beneficiary if the annuitant dies early, so funds must be set aside to cover those future payments, reducing the monthly amount. A refund option ensures the total amount paid equals the purchase price, so payments are adjusted downward to fund the potential refund. A life contingency or other guaranteed features similarly share the risk or extend payments to others, which lowers the monthly payment compared to pure life.