Cash Refund Annuity
What Is a Cash Refund Annuity?
A cash refund annuity returns to a beneficiary any sum left over should the person who purchased the annuity — called the annuitant — bite the dust before breaking even on what they paid in premiums.
Such a provision is regularly included as a rider on a life annuity (otherwise called a "unadulterated life annuity" or "straight life annuity"). That's what it specifies on the off chance that the annuitant dies before the annuity payments received equivalent the annuity payments made, the annuity writer or insurance company will pay the difference to a named beneficiary, which is normally a spouse.
Regularly, a cash refund annuity will cost the annuity buyer more in premiums. For the annuity writer — generally a safety net provider — it is a significant instrument for convincing individuals to buy an annuity. A cash refund annuity is likewise alluded to as a "life with cash refund annuity."
How a Cash Refund Annuity Works
Annuities are utilized to guarantee a steady stream of income over a predefined period of time. Contingent upon the annuity features, the payments will either proceed (like in a life annuity) or stop when an annuitant bites the dust.
In a cash refund annuity, the annuity holder's beneficiary receives a lump sum. For instance, assume a retired person purchases an annuity for $100,000 and receives $60,000 in annuity payments before dying. The beneficiary, in this case, would receive $40,000 as a lump sum cash refund from the insurance company.
An installment refund annuity would return the $40,000 in payments throughout some stretch of time rather than a lump sum. In view of the time value of money, a life annuity with an installment refund will generally pay a marginally higher guaranteed benefit to the original annuitant as compared to a life with cash refund annuity, which features a lump-sum payment.
Types of Cash Refund Annuities
A cash refund feature in an annuity can take many forms. For instance, under a Single Premium Immediate Annuity (SPIA), an individual might decide to structure their annuity as life with a cash refund or joint-life with a cash refund.
In a life with cash refund annuity, payments are made until the annuitant kicks the bucket. Assuming any balance stays between the sum of the premium payments and the sum of the payouts, that remainder is paid to the annuitant's beneficiary.
A joint life with cash refund annuity works the same way, then again, actually it keeps on making payments until both named individuals kick the bucket (typically the two spouses), then will pay any extra balance to a named beneficiary.
In such an annuity option, the payments due to the enduring spouse might be equivalent to assuming the two spouses were as yet alive. The payments could likewise be lower on the off chance that the annuity was structured to give a greater payment while the two spouses are alive at the cost of a lower payment after one spouse passes on.
Features
- A cash refund annuity is returned to a beneficiary when the annuitant has kicked the bucket prior to getting what they paid in premiums.
- A cash refund annuity is typically included as a rider.
- Contingent upon the type of annuity, payments proceed to the beneficiary or stop when the annuitant kicks the bucket.
