South Carolina Insurance Practice Exam

Which annuitization option will provide the highest monthly payout?

1. Period certain option

2. Joint life option

3. Straight life

4. Life with period certain option

The correct answer is: Straight life

The straight life annuitization option provides the highest monthly payout because it guarantees payments for the lifetime of the annuitant without any additional features that could lower the monthly benefit. This option focuses solely on the individual receiving the annuity, meaning the insurer does not have to account for payouts beyond the life of that one person. In contrast, the period certain option ensures payments for a specific number of years, which can result in lower monthly payments since the insurer must expect to pay out for those years regardless of whether the annuitant lives beyond that period. The joint life option provides payouts for two individuals, which also can decrease the amount received by each since it guarantees payments until the last surviving individual passes away. The life with period certain option pays the annuitant for their life but also guarantees payments for a specified period. If the annuitant dies before the end of that period, payments continue to a beneficiary, which can also lead to lower payouts to account for this extended obligation. Overall, the straight life option maximizes the monthly benefit by eliminating any additional guarantees that would require the insurer to manage longer payout durations.