Under a 'life with 10-year period certain' annuity option, if the annuitant dies four years after payments begin, the beneficiary:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The life-with-period-certain annuity option pays income for the annuitant's lifetime but guarantees payments for at least a specified number of years. If the annuitant dies before the guaranteed period ends, payments continue to the beneficiary for the remainder of the period. In this case, four of the ten guaranteed years have been used, so the beneficiary receives payments for the remaining six years. This option protects against the risk of early death while still providing lifetime income, which is why it blends a lifetime payout with a minimum payment commitment.
Why the other options are wrong
- B) Stopping all payments at the annuitant's death is the behavior of a pure life annuity, which provides no guarantee period. The life-with-period-certain option exists precisely to avoid that total stop at early death.
- C) The beneficiary does not receive a lump sum equal to the premiums; rather, the income continues for the balance of the guaranteed period according to the payment schedule.
- D) The guaranteed period is a contractual promise to pay for at least the stated number of years. The insurer cannot retain the remaining payments that the contract guarantees.
Memory hook
Period certain = a floor of guaranteed years. Early death still pays out the rest of the floor.