Annuities✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
What does a life annuity with a refund feature provide if the annuitant dies shortly after annuitization begins?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
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.
Why the other options are wrong
- B) Forfeiture of the unpaid principal is the characteristic of a straight life option, not a refund option.
- C) The contract does not convert into a new annuity for the beneficiary; the refund feature simply completes the unpaid principal value.
- D) Annuitized contracts require no further premium payments; the refund feature involves the unpaid balance, not ongoing premiums.
Memory hook
Refund = the purchase price gets a ghost clause: if you die early, the leftover principal finds a beneficiary.