IM-26 March 15, 2012; IM-106 November 8, 2007; IM-73 December 20, 1995
To be considered actuarially sound, the expected payments from the annuity are equal to or greater than the purchase price and will be returned to the annuitant during the annuitant’s expected lifetime. Transfer penalties may apply if the policy is to be paid out over a time greater than the life expectancy of the annuitant or if regular payments from the annuity are small with the intent of leaving a substantial value for the beneficiary at the end of the policy’s term.
Based on the amount, frequency and duration of payments, calculate the total dollar amount of the payments that are expected to be received. If the annuity is for life, the expected number of payments is the number of payments per year times the annuitant’s life expectancy at the time the payments start. Refer to the Period Life table published by the Office of the Chief Actuary of the Social Security Administration to determine the life expectancy of the annuitant.
EXAMPLE: Mrs. K, age 65, purchased a single premium life annuity for $25,000. She will receive monthly payments of $125. Her life expectancy is 19.2 years. The total anticipated payout is $28,800. ($125 per payment x 12 payments per year x 19.2 years = $28,800) Mrs. K’s policy is actuarially sound because it is constructed to return at least the value of the premium to her during her lifetime.
NOTE: Do not use the Social Security Administration tables for determining life estate values; continue using the Carlisle Table for life estates, as described in Appendix A – Determination of the Value of a Life Estate or Dower Interest.
If the annuity is period certain (see 1030.030.05 Definitions Related to Annuities), the expected number of payments is simply the number of payments per year times the years of period certain; some annuities will express the period certain in expected number of payments.
EXAMPLE: Mr. C, age 67, purchased an annuity for $20,000 to be paid over a 10-year period certain with monthly payments of $200. The total payout is $24,000 (10 years x 12 payments per year x $200 per payment). Mr. C’s life expectancy is 14.95 years. Mr. C’s policy is actuarially sound because it is constructed to return at least the value of the premium to him during his lifetime.