South Carolina Insurance Practice Exam

If an annuitant dies before the annuity start date, what will happen to the premiums paid?

1. The premiums will be refunded without interest

2. Returned to the estate

3. The premiums paid plus interest will go to the beneficiary

4. The insurer keeps the premiums

The correct answer is: The premiums paid plus interest will go to the beneficiary

If an annuitant dies before the annuity start date, the correct response is that the premiums paid, plus interest, will go to the beneficiary. This outcome is typically defined in the contract of the annuity and serves as a protective measure for the policyholder's investment in the annuity. It ensures that the funds invested do not simply disappear but are instead passed on to a designated individual, often providing peace of mind to those investing in the policy. This benefit reinforces the principle of safeguarding the financial interests of the annuitant and their beneficiaries, making it an important aspect of annuity agreements. Premiums are generally designed to accumulate value over time, and interest is often added to the initial investment, reflecting the accrued value of the annuity. Beneficiaries receive both the initial contributions and any additional interest, enhancing the overall benefit intended for them. Other scenarios, such as returning the premiums directly to the estate or the insurer retaining the premiums, do not align with standard annuity practices or the intentions of such financial products, as they would not uphold the contractual obligations outlined in an annuity agreement intended to benefit a named beneficiary.