Question

Cora is a widow and has no relatives to whom she wishes to transfer assets at her death. She wants to invest some of her assets into an annuity that will give her the largest periodic payment and will continue for her entire life. Which of the following should she consider?

a. a joint and survivor annuity
b. a life annuity with refund period
c. a straight life annuity
d. a life annuity with period certain 37

Answer 1

Cora should consider a straight life annuity.

Step-by-step explanation:

If Cora wants to invest her assets into an annuity that will give her the largest periodic payment and continue for her entire life, she should consider a straight life annuity. A straight life annuity provides a fixed income for the lifetime of the annuitant with no survivor benefits. This means that it will stop making payments upon her death and will not transfer any remaining assets to her beneficiaries.

On the other hand, the other options mentioned have additional features:

1. A joint and survivor annuity would provide a periodic payment during Cora's lifetime, and after her death, a portion of the payment would continue to her specified survivor(s) for their lifetime.
2. A life annuity with refund period would provide periodic payments during Cora's lifetime, and if she dies before receiving the total payout, her beneficiaries would receive the remaining payments until the refund period ends.
3. A life annuity with period certain would provide periodic payments during Cora's lifetime, and if she dies before a specified period, her beneficiaries would receive the remaining payments until the period ends.

Considering her specific situation, a straight life annuity would be the best option for Cora in order to maximize her periodic payment.