South Carolina Insurance Practice Exam

Upon the death of an annuitant before the annuity start date, what typically happens to invested principal?

1. It is retained by the insurance company

2. It is disbursed to the estate

3. It is given back with accrued interest to the named beneficiary

4. It is forfeited completely

The correct answer is: It is given back with accrued interest to the named beneficiary

When an annuitant passes away before the annuity start date, the principal that has been invested is typically returned to the named beneficiary, often along with any accrued interest. This is a standard provision in many annuity contracts, which ensures that the intended beneficiaries receive the funds invested in the annuity contract. The objective of this setup is to provide a safety net for the annuitant's loved ones, ensuring that the funds do not simply vanish upon the annuitant's death. Instead, it allows for a smoother transfer of wealth, aligning with the annuitant's original intent, which may have included providing financial support for their beneficiaries. The other options do not accurately reflect the common practices surrounding annuities. The insurance company typically does not retain the invested principal, nor is it disbursed to the estate in most cases, as this would likely involve delays and additional administrative processes. Forfeiture of the funds is also uncommon, as such a scenario would contradict the fundamental purpose of the annuity - to protect the invested capital even after the annuitant's death.