Annuitization

The remaining unpaid principal is paid to a beneficiary, either in installments or as a lump sum — A refund annuity guarantees that if the annuitant dies before total payments equal the purchase price (principal), the difference is paid to a beneficiary — under an installment (period certain) refund as continuing payments, or under a cash refund as a lump sum. This protects the principal against early death while still providing lifetime income, at the cost of a somewhat lower payment than straight life.

National insurance concept

Calculate the initial income payment, with future payments fluctuating based on actual returns compared with the AIR — The assumed interest rate (AIR) is the rate used to compute the first income payment in a variable annuity. After annuitization, the insurer compares actual separate account performance with the AIR: if actual returns exceed the AIR, income payments increase; if returns fall short, payments decrease. The AIR is therefore a benchmark against which actual performance is measured, not a guarantee. It is precisely this mechanism that makes variable annuity income vary.

National insurance concept