Question 21

The balance of the annuity fund is forfeited to the insurer.

If Shari dies 36 months after the monthly annuity payments begin, the remaining balance of the annuity fund is forfeited to the insurer, as straight life annuities do not provide for a death benefit or residual value to beneficiaries after the annuitant's death.

A) forfeited to the insurer.

This option is correct because straight life annuities are designed to provide income for the lifetime of the annuitant. If the annuitant passes away before receiving a total amount equal to the initial investment, the remaining balance is not paid to heirs and is instead retained by the insurer.

B) tax-free income to the annuity's beneficiaries.

This option is incorrect because beneficiaries do not receive any income from a straight life annuity upon the death of the annuitant. The annuity ceases upon the death of the annuitant, and therefore, there is no income to be considered tax-free.

C) awarded as a lump sum to the estate of the policyowner.

This option is incorrect as well. The straight life annuity does not provide a lump sum payout to the estate or beneficiaries after the death of the annuitant, meaning that no funds would be transferred to the estate.

D) guaranteed to continue for 5 years to the annuity's beneficiaries.

This option is also incorrect. A straight life annuity does not guarantee payments beyond the life of the annuitant, meaning that there are no obligations for the insurer to continue payments for the beneficiaries.

Conclusion

The correct answer, that the balance of the annuity fund is forfeited to the insurer, highlights the nature of straight life annuities, which are specifically structured to terminate upon the death of the annuitant without any residual benefits. All other options fail to recognize the lack of death benefits associated with this type of annuity.