Payout options affect life expectancy and payments; which statement is true?

• A. They have no effect on the total payments.
• B. They are designed to maximize tax efficiency regardless of life expectancy.
• C. They guarantee the same total payments under all options.
• D. They use mortality assumptions and can impact total expected payments and survivor benefits.

Answer: (D)

Payout options in annuities are structured around life expectancy, and mortality tables are used to price and shape how long payments will continue and whether a survivor will receive benefits. This means the option chosen can change the total amount expected to be paid and whether a beneficiary continues to receive payments after the original owner’s death. For example, a single-life payout provides higher payments while the owner is alive but ends at death, a joint-life option lowers payments but continues as long as either person is alive, and period-certain or cash-refund guarantees adjust total payments based on whether the holder dies early or a survivor or beneficiary receives remaining payments. Because these structures hinge on mortality assumptions, they can affect both total expected payments and survivor benefits, making the statement true.