65. A person owns a life annuity. He elects to receive his annuity payments monthly for the remainder of his life with 'ten years certain'. This means the insurer will make payments
Answer: B
The insurer will make payments for a minimum of 120 months and a maximum of the remainder of his life.
The individual will receive annuity payments for at least ten years, totaling 120 months, but will continue to receive payments for the rest of his life if he lives beyond that period.
A) for 120 months, if the insured lives that long.
This option is incorrect because it implies that payments will cease once the insured reaches 120 months, regardless of whether he is still alive. However, the structure of a life annuity with 'ten years certain' ensures payments continue for life beyond that point if the insured survives.
B) for a minimum of 120 months and a maximum of the remainder of his life.
This option accurately reflects the terms of the annuity. It guarantees payments for at least 120 months, and if the individual lives longer, payments will continue for the remainder of his life, which aligns with the definition of a life annuity with 'ten years certain'.
C) until his death, when his beneficiary begins receiving payments for 120 additional months.
This choice is incorrect because it suggests that payments will transition to a beneficiary after the insured's death for an additional 120 months. In fact, the payments are designed for the insured's life, and if he passes away before the ten years are up, payments would continue to his beneficiary for the remaining period, but not for an additional 120 months afterward.
D) during the 'period certain' after which the payments will be reduced, but they will continue for the rest of his life.
This option is misleading as it implies a reduction in payments after the 'period certain.' In a life annuity with 'ten years certain,' after the 120 months, if the annuitant is still alive, payments do not reduce; they continue at the same rate for the remainder of his life.
Conclusion
Option B is definitively correct, as it accurately describes the payment structure of a life annuity with 'ten years certain.' All other options either misinterpret the payment terms or inaccurately describe the conditions under which payments are made. This distinction is crucial for understanding how life annuities function in financial planning.