An annuitant dies during the distribution period. What type of annuity would pay the difference between the annuity value and the income payments already made to a beneficiary?

• A. Refund annuity
• B. Life annuity
• C. Joint life annuity
• D. Fixed annuity

Answer: (A)

Refund features in annuities are designed to protect the principal if the annuitant dies before the full value has been paid out. The idea is that the contract has an initial amount funded (the annuity value), and as income payments are made, a remaining balance may still be owed. With a refund annuity, the difference between the annuity value and the total payments already received is paid to a beneficiary. This can occur as a lump-sum cash refund or as continued payments until the remaining amount is exhausted. The other types—life annuity ends with the annuitant’s death and provides no remaining balance to refund; joint life continues payments after one death and doesn’t specifically refund the remaining value to a beneficiary; fixed annuity focuses on a guaranteed payment schedule rather than returning any remaining principal—do not provide this refund mechanism. So, the option that fits paying the difference to a beneficiary is a refund annuity.