What Does Refund Annuity Mean?
A refund annuity is a policy that, upon the death of the annuitant, guarantees payments equal to the premium paid. It promises to pay a set amount annually to the annuitant. However, in the event that the annuitant dies before receiving any payment for the full amount of the paid policy, the annuitant’s beneficiary is paid a sum that is the difference between the purchase price of the policy and the total payments received when the annuitant was still alive. The beneficiary needs to submit proof of the annuitant’s death to receive the excess of the cost of the annuity.
A refund annuity is also known as a cash refund annuity.
Insuranceopedia Explains Refund Annuity
A cash refund annuity allows the beneficiary to receive a lump-sum amount in the event that the annuitant dies. For instance, if an individual purchases an annuity for $100,000 and receives $60,000 in annuity payments before death, the beneficiary receives the remaining $40, 000 in a lump-sum cash refund. An alternative to the cash refund is the installment refund that pays an annuity, as the name suggests, in staggered installments.
A life annuity with installment refund pays a higher amount to the beneficiary compared to the cash refund annuity. The cash refund can take several forms, with the most popular being the single premium immediate annuity (SPIA), wherein an individual can restructure the annuity as a joint life with a cash refund. This type of annuity option continues to make payments to both individuals under the joint life option die before the leftover balance is paid to the beneficiary.