Income Annuity Pricing: Period-Certain Payments And Cash Refund Provisions
May 20, 2020 by Wade Pfau
Pricing for an Income Annuity with Period-Certain Payments
We can also consider a few more examples to better understand how this model for annuity pricing can be applied to different annuity flavors. For instance, what happens to the price of this annuity if we guarantee that income will be provided for at least ten years, even if the annuitant does not live that long? This type of provision may be desired for someone worried about an early death.
Practically speaking, to provide ten years of certain income, the only adjustment needed in Exhibit 4.1 is that the Survival Probabilities become 100 percent for the first ten years of payments. The annuitant does not become immortal, but from the perspective of the actuaries who are pricing this annuity, payments must be made regardless of the annuitant’s survival status.