Colorado Life Producer License Practice Test

When an annuity is written, whose life expectancy is taken into account?

1. Insured

2. Beneficiary

3. Annuitant

4. Policyholder

The correct answer is: Annuitant

In the context of annuities, the life expectancy taken into account is specifically that of the annuitant. The annuitant is the individual whose life is used to determine the duration and payout of the annuity payments. This is crucial because the structure and financial security of the annuity are based on the annuitant's projected lifespan. When an annuity is purchased, the insurance company calculates the expected payout based on the annuitant's age, health status, and life expectancy, which influences the amount and timing of the payments they will receive. The annuity may provide a stream of income for the annuitant's lifetime, illustrating the importance of their life expectancy in determining the terms of the contract. Other individuals such as the insured, the beneficiary, or the policyholder may be relevant in different contexts, but they do not directly influence the calculations made for the annuity's structure and payouts in the same way that the annuitant does. This focus on the annuitant ensures the insurance company remains solvent while fulfilling its financial obligations based on the annuity's design.