PSI Life Exam Practice Test

What is the impact of death on an immediate annuity?

1. The annuity continues regardless of death

2. Payments cease immediately with death

3. Beneficiary assumes payments

4. Death does not affect payment amounts

The correct answer is: Payments cease immediately with death

When considering the impact of death on an immediate annuity, it is essential to acknowledge the terms of the specific annuity contract. An immediate annuity typically begins payments shortly after a lump sum is paid to the insurance company, and these payments are generally made for a fixed period or for the lifetime of the annuitant. In the event of the death of the annuitant, most immediate annuity contracts do not provide for the continuation of payments; they cease immediately upon death unless specific provisions, such as a guaranteed period or a joint-and-survivor option, are included in the contract. This means that if the annuitant passes away shortly after the annuity starts, no further payments are made, and the insurance company retains any remaining balance. Hence, this points to how the structure of an immediate annuity typically functions, leading to the conclusion that payments stop directly with the death of the annuitant. While some annuities may have options for beneficiaries to receive payments, that is not the case with all immediate annuities, thus it is crucial to look at the contract details for any such provisions. Therefore, the idea that payments cease immediately upon the death of the annuitant aligns with how most immediate annuities