Annuities✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
Among the available annuity payout options, the straight life (pure life) option pays the annuitant the largest periodic income amount. Why is this so?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Under the straight life option, payments stop the moment the annuitant dies, and the insurer retains any principal not yet paid out. Because the insurer bears no period-certain guarantee, no refund obligation, and no second-life commitment, there is no guarantee cost to price in, and the entire actuarial value funds the largest possible lifetime payment. Options that add guarantees trade a lower periodic income for the added protection.
Why the other options are wrong
- A) A minimum payment guarantee describes life with period certain, which pays less each period precisely because of the guarantee.
- B) Refunding the purchase price on early death is the refund option, which lowers the periodic payment in order to fund the refund feature.
- C) Covering two lives is the joint and survivor option, whose payments are smaller because the insurer must pay as long as either annuitant lives.
Memory hook
Straight life = biggest check, no safety net. Payments stop the day you stop.