AD Banker Comprehensive Practice Exam

Which type of annuity guarantees payment of total income at least equal to the purchase price?

1. Refund life annuity

2. Pure life annuity

3. Joint life annuity

4. Joint life and survivorship annuity

The correct answer is: Refund life annuity

A refund life annuity is designed to ensure that the total income received by the annuitant will be at least equal to the amount they initially invested or "purchased" the annuity for. This is accomplished through mechanisms that provide either a return of the remaining principal to a beneficiary or continuing payments to the annuitant until that threshold is reached. If the annuitant passes away before they have received income payments that total the purchase price, the remaining amount may be paid to a designated beneficiary, guaranteeing that the total payout will not be less than what was initially invested. This feature distinguishes the refund life annuity from other types of annuities. For instance, a pure life annuity offers lifetime income but does not guarantee the return of the purchase price; there is a risk that the annuitant may receive less than what they paid if they die shortly after purchasing the annuity. A joint life annuity covers two individuals and pays out for as long as one of them is alive, but it also lacks a guarantee of the total payout equaling the original investment. Similarly, a joint life and survivorship annuity continues payments until both individuals have passed away, without guaranteeing the return of the full purchase amount. The refund feature