Final answer:
A refund annuity ensures that the remaining value is paid to a beneficiary if the annuitant dies before recovering their investment in the annuity, much like the cash value that accrues in a whole life insurance policy.
Step-by-step explanation:
A refund annuity is an annuity type that ensures a beneficiary receives the difference between the annuity's value and the income payments already made when the annuitant passes away during the distribution period. This arrangement guarantees that if the annuitant dies before fully recovering the investment in the annuity, the remaining amount is paid out to the designated beneficiary.
Similar to cash-value life insurance, which offers a death benefit and may accumulate a cash value for policyholder use, a refund annuity provides a safety net for beneficiaries, addressing concerns about the annuitant not fully benefiting from the annuity due to an early demise. These financial instruments offer individuals options to secure their financial well-being and provide for their loved ones in the event of unexpected circumstances.