AD Banker Comprehensive Practice Exam

An individual purchased a fixed annuity with flexible premiums. When she annuitized the policy, she chose the Life Income 10-Year Certain option. What would the beneficiary receive if the annuitant dies 4 years after the annuity payout began?

1. 6 more years of payments

2. Nothing

3. The undistributed balance

4. 10 more years of payments

The correct answer is: 6 more years of payments

In the scenario presented, the individual chose the Life Income 10-Year Certain option when annuitizing her fixed annuity. This payout option guarantees that the annuitant will receive income for her lifetime, with a minimum guarantee that payments will be made for at least 10 years. Since the annuitant has already received payments for 4 years, there remain 6 years of payment obligations because of the 10-year certain provision. If the annuitant were to pass away after 4 years of receiving benefits, the named beneficiary would begin receiving the remaining payments for the full 10-year guaranteed period, totaling an additional 6 years of payments. This is designed to ensure that the investment is returned to the beneficiary, honoring the minimum payout stipulation regardless of the annuitant's lifespan. In contrast, if the policy did not have any guaranteed period or certain payments, the beneficiary would receive nothing at the time of the annuitant's death. Therefore, the structure of the Life Income 10-Year Certain option specifically allows for the receipt of the remaining guaranteed payments to the beneficiary in the event of the annuitant's death within that guaranteed period.