Question 22

The settlement option that pays a specified amount to an annuitant, but pays no residual value to a beneficiary is known as life income.

Life income is a settlement option that guarantees payments to the annuitant for their lifetime, without any remaining balance being paid out to beneficiaries after the annuitant's death.

A) interest only.

The interest only option involves paying the annuitant the interest earned on the principal amount, while the principal remains intact for future distribution. This option does not align with the definition given, as it allows for the principal to be returned, rather than providing no residual value.

B) installment refund.

The installment refund option guarantees that if the annuitant dies before receiving payments equal to the total amount invested, the remaining balance is paid out to a beneficiary. This directly contradicts the requirement of having no residual value to a beneficiary.

C) fixed period.

The fixed period option pays the annuitant for a predetermined number of years. If the annuitant dies before the end of this period, the payments continue to a beneficiary until the end of the term. Therefore, it does not meet the criteria of providing no residual value.

D) life income.

Life income is the correct option, as it ensures that payments are made to the annuitant for their lifetime only, with no residual value being distributed to any beneficiaries upon the annuitant's death.

Conclusion

Life income is the only settlement option that strictly pays an annuitant for their lifetime without transferring any remaining value to beneficiaries. In contrast, all other options involve some form of residual payment or value, making them unsuitable for the definition provided in the question. Therefore, life income is definitively the correct choice.