A refund annuity is an annuity that, upon the annuitant's death during the distribution period, pays the beneficiary what?

• A. The difference between the annuity value and the income already received
• B. A fixed death benefit
• C. The remaining principal only
• D. No payout is made to the beneficiary

Answer: (A)

Refund annuities are designed so that if the annuitant dies during the distribution period, the beneficiary receives the portion of the original funding that hasn’t yet been paid out. This amount is the difference between the annuity’s value (the amount funded) and the income the annuitant has already received. In other words, whatever hasn’t been paid out by the time of death goes to the beneficiary. This is why the correct choice is the difference between the annuity value and the income already received.