Legal Definitions - nonrefund annuity

A nonrefund annuity is a type of financial contract, typically purchased from an insurance company, that provides a series of regular payments to an individual (the "annuitant") for the rest of their life. The defining characteristic of a nonrefund annuity is that all payments cease upon the death of the annuitant, and no remaining principal or unused funds are paid out to beneficiaries or heirs. In exchange for this condition, nonrefund annuities generally offer higher periodic payments compared to annuities that include a refund or guarantee period.

Here are some examples to illustrate how a nonrefund annuity works:

• Example 1: Maximizing Retirement Income

  Sarah, a 70-year-old retiree, has a modest pension and some savings. She wants to ensure she has the highest possible guaranteed income for the remainder of her life, as she has no dependents and her primary concern is her own financial security. She decides to use a portion of her savings to purchase a nonrefund annuity. This type of annuity provides her with larger monthly payments than other annuity options because the insurance company knows its payment obligation will end entirely upon her death, with no funds passed on to an estate or beneficiaries. Sarah accepts this condition, prioritizing her immediate, higher lifetime income.

• Example 2: Planning for Individual Lifetime Support

  David, a 65-year-old widower, has a significant lump sum from a life insurance payout. He wants to convert this into a steady income stream that will last as long as he lives, without concern for leaving an inheritance. He chooses a nonrefund annuity. Each month, he receives a fixed payment that is higher than what a refund annuity would offer. If David lives to be 95, he continues to receive payments until his death. If he passes away at 70, the payments stop, and no portion of the original lump sum is returned to his estate or any designated person, as per the nonrefund terms.

• Example 3: Supplementing Social Security for a Single Person

  Maria, a 68-year-old single woman, wants to supplement her Social Security benefits to cover her living expenses comfortably. She has a sum of money in a savings account that she doesn't anticipate needing for emergencies. To maximize her monthly income, she invests this money into a nonrefund annuity. The annuity provides her with a consistent, higher monthly payment than other annuity types because there is no provision for a death benefit or return of principal to an heir. Maria understands that once she passes away, the payments will cease, and the remaining value of the annuity will not be distributed to anyone else.