A refund annuity provides that if the annuitant dies before receiving payments equal to the cost of the contract, the:

Why A is correct

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.

Why the other options are wrong

• B) Receiving nothing would defeat the entire purpose of the refund feature, which guarantees that payments will at least equal the contract's purchase price. The beneficiary is entitled to the outstanding balance.
• C) The insurer has contractually obligated itself to return the unreturned portion of the cost. Keeping all remaining funds would violate the refund guarantee the owner paid for, which is the essence of the option's appeal.
• D) The refund benefit is limited to the difference between the cost and the payments already made. There is no feature that doubles the remaining payments, and doubling would exceed the guarantee promised in the contract.

Memory hook

Refund annuity = your money comes back if death arrives before payments break even.