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Refundable income annuities: Feasibility of money-back guarantees

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  • Milevsky, Moshe A.
  • Salisbury, Thomas S.

Abstract

Refundable income annuities (IA), such as cash-refund and instalment-refund, differ in material ways from the life-only version beloved by economists. In addition to lifetime income they guarantee the annuitant or beneficiary will receive their money back albeit slowly over time. Although we document that refundable IAs now represent the majority of sales in the U.S., they are mostly ignored by insurance and pension economists. Indeed, their pricing, duration, and money's-worth-ratio is complicated by recursivity which will be explained, and we offer a path forward to make refundable IAs tractable.

Suggested Citation

  • Milevsky, Moshe A. & Salisbury, Thomas S., 2022. "Refundable income annuities: Feasibility of money-back guarantees," Insurance: Mathematics and Economics, Elsevier, vol. 105(C), pages 175-193.
    • Handle: RePEc:eee:insuma:v:105:y:2022:i:c:p:175-193
    DOI: 10.1016/j.insmatheco.2022.03.004
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    Cited by:

    1. Atta Mills, Ebenezer Fiifi Emire & Anyomi, Siegfried Kafui, 2023. "Optimal lifetime income annuity without bequest: Single and annual premiums," Finance Research Letters, Elsevier, vol. 53(C).
    2. Moshe A. Milevsky & Thomas S. Salisbury, 2024. "The Riccati Tontine: How to Satisfy Regulators on Average," Papers 2402.14555, arXiv.org.

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    More about this item

    Keywords

    Life annuities; Cash refunds; Refundable income annuities; Money's worth ratio; Pensions; Retirement planning;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G52 - Financial Economics - - Household Finance - - - Insurance
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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