Annuities✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
How does an annuity insurer keep its promise to make lifetime income payments to every annuitant?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Like life insurance, an annuity relies on the law of large numbers and a mortality table. Because some annuitants die early and stop receiving payments, the insurer has funds to keep paying those who live longer — this is sometimes called the survivor's credit. The more homogeneous and numerous the group, the more accurately the insurer can predict the average payout period and price each contract accordingly.
Why the other options are wrong
- B) No insurer can guarantee equity appreciation; fixed annuities credit guaranteed minimum interest while variable annuities place market risk on the owner.
- C) Annuities are available to purchasers of all ages; age affects pricing and payment amounts but not eligibility for lifetime income.
- D) Principal is not returned before income begins; lifetime income arises from the annuity funding process, not from a prior principal return.
Memory hook
The early birds fund the late bloomers: pooled mortality keeps the annuity promise alive.