A refund annuity is characterized by which primary feature when the annuitant dies during the distribution period?

• A. The beneficiary receives the difference between the annuity value and the income payments already made
• B. The payments stop and no amount is paid to anyone
• C. The annuity is converted to term life insurance
• D. The payout rate is doubled for survivors

Answer: (A)

In a refund annuity, if the annuitant dies before the total value of the payments made equals the amount funded, the remaining value is paid to a beneficiary. The defining feature is that the beneficiary receives the difference between the annuity’s original value (or funded amount) and the income payments already paid to the annuitant.

For example, if the contract was funded for $100,000 and you start receiving payments but die after $60,000 in payments have been made, the remaining $40,000 would be paid to the designated beneficiary. This describes the refund mechanism.

The other scenarios don’t fit: stopping payments with nothing to the beneficiary isn’t a refund feature; converting the contract to term life insurance isn’t how refunds work; doubling the payout for survivors isn’t a characteristic of refund annuities.