At the time that George bought his life annuity, his life expectancy was 20 years. However, George lived for 50 more years and died at age 117. What happened to his annuity after he reached his life expectancy?

Question

1. The periodic income stopped.
2. Nothing; it continued to pay the same benefit.
3. The annuity income increased to offset inflation.
4. The annuity income became tax-free.

Answer 1

In a typical life annuity, the payments are based on the life expectancy of the annuitant at the time of the purchase. Once the annuitant exceeds their life expectancy, the periodic income from the annuity continues to be paid as long as the annuitant lives.

Since George lived 50 years beyond his life expectancy, the correct answer is:

2. Nothing; it continued to pay the same benefit.

The periodic income from the annuity would continue for George's lifetime, reflecting the structure of most life annuities.