Cash Refund Annuity
Pays lifetime income, and at death refunds to the beneficiary any remaining principal not yet paid out in a lump sum.
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Practice This Concept
The difference between a cash refund annuity and an installment refund annuity is that:
Cash refund pays the beneficiary the difference in a lump sum, while installment refund continues periodic payments until the purchase price is recovered — Refund annuities guarantee that the owner's purchase price will not be lost if the annuitant dies early. A cash refund annuity pays the beneficiary the difference between the total premiums paid and the amounts already distributed as a single lump sum. An installment refund annuity instead continues making periodic income payments to the beneficiary until the total of all payments equals the purchase price. Both protect the cost basis, but they pay the shortfall in different forms.
National insurance concept
A refund annuity provides that if the annuitant dies before receiving payments equal to the cost of the contract, the:
Beneficiary receives the difference between the contract cost and the payments already made — A refund annuity guarantees that total payments will equal at least the purchase price of the contract. If the annuitant dies before total payments reach the cost, the beneficiary receives the shortfall. The refund can be paid as a lump sum, which is typical of a cash refund annuity, or as continuing installments under an installment refund annuity. This feature removes the risk of losing the principal through an early death, making it more attractive to conservative buyers who want assurance that their investment will not be forfeited.
National insurance concept
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