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A refund annuity is also called a life income with refund annuity. These types of annuities refund your principal amount if you do not receive the entire principal back during your payment period. Normally, you wouldn't receive the principal back if you died before the principal could be paid back to you.
The refund annuity pays a beneficiary of your choosing if the insurer makes payments to you but does not pay you an amount that, collectively, equals the original principal amount that you gave to the insurance company. Since the insurer invests the principal amount, it can make these guarantees to you and your beneficiary.
The benefit of a refund annuity is that you are guaranteed to get back everything you gave to the insurance company. Not all annuities work this way; most do not
refund the principal amount to a beneficiary. A refund annuity ensures that, regardless of what happens, the insurer does not keep your savings.
By using a refund annuity, the insurer will give you lower premium payments than you would get under an annuity option without a refund provision. This means that you may need to find an additional source of income if the refund annuity payment does not cover all of your expenses.
Consider whether you would like the benefit of being able to give any remaining annuity balance to a beneficiary and accept a slightly lower income from the annuity or whether you would like to receive higher lifetime payments with no refund. With a refund annuity, you are deciding whether or not your beneficiaries get any of your money if you die before your principal amount is refunded to you.