FP Canada Qualified Associate Financial Planner (QAFP) Practice Test

With a life annuity that includes a cash refund, the idea is lifetime income for the annuitant, with a safeguard for heirs. You receive periodic payments for life, but if you die before the total payments you’ve received equal the amount you paid for the annuity, the remaining balance is paid to your beneficiary in one lump sum. This guarantees that the principal invested isn’t fully lost if death comes early.

For instance, if you paid 100,000 for the annuity and your payments over time total only 90,000 when you die, your beneficiary would receive the remaining 10,000 as a lump sum. If you live long and your payments exceed the purchase price, there’s no additional refund—the concept is about ensuring at least the principal is returned via a lump sum if death occurs early.

This differs from a standard life annuity where payments cease at death and no lump-sum refund goes to heirs, and from options that imply ongoing payments to a survivor or inflation adjustments, which are separate features.