Definition
A life-only annuity is a payout structure in which the insurer makes scheduled income payments for the lifetime of the contract owner (or other designated annuitant) and the payment obligation ends at death, with no continuation to a survivor and no return of any remaining premium.
Why it matters
The life-only payout structure produces the highest income per dollar of premium of any standard annuity payout. Because no payment continues after the contract owner's death and no remaining premium is refunded, the carrier's pricing reflects the full value of the mortality credits the arrangement generates. Life-only is the structural baseline against which other payout variants — joint and survivor, period certain, cash refund, installment refund — are compared, because each of those variants reduces income relative to life-only in exchange for some additional protection.
How it works
In a life-only annuity, the insurer commits to making scheduled income payments for the lifetime of the contract owner (or another designated annuitant — life-only structures may be written on a single life that is not the contract owner). Payments commence on the contractually specified date — at issue for an immediate life-only, on the deferred income commencement date for a deferred life-only — and continue at the contractually specified amount, in the contractually specified frequency (typically monthly), until the annuitant's death. At death, the payment obligation ends. There is no continuation to a survivor, no death benefit, no return of any remaining premium, and no value to the estate other than any final payment scheduled before death. The carrier's mortality credit experience flows entirely to the participants who survive — early death produces a windfall to the carrier (or, equivalently, to the broader pool of life-only annuitants the carrier prices against) and late survival produces a windfall to the surviving annuitant.
In practice
For an individual considering a life-only annuity, the structural decision is whether to maximize income at the cost of accepting the early-death loss — meaning, accepting that if the contract owner dies shortly after annuitization, the premium is effectively forfeited to the pool. The decision is most appropriate where the individual has covered bequest motives separately (through other assets), where the income amount is meaningful enough that the additional life-only premium over a refund variant would matter, and where the individual is comfortable with the structural fact that the arrangement evaluates well only conditional on survival to or past life expectancy. A professional should help an individual think through whether life-only is the right structure given the individual's bequest preferences, the size of the premium relative to the rest of the estate, and the specific income gap being funded. The comparison most often run is life-only versus cash refund at the same premium and rate environment — the income reduction from adding the refund feature is the price paid for the bequest protection.
In the Longevity Standard Framework
The life-only annuity is the canonical transferred-risk payout structure and the highest-income variant in the standard payout taxonomy because the carrier's pricing reflects the full mortality credit value with no refund or continuation features reducing the carrier's expected mortality benefit. In the cost-of-income framework, life-only produces the strongest realized value comparison among standard payout variants for any given individual at any given carrier and rate environment, because none of the structural mortality benefit is being diverted to refund or survivor features. The cost of additional features — joint and survivor continuation, period certain guarantee, cash refund or installment refund — can be measured directly as the gap in cost of income between the life-only arrangement and the variant being evaluated, holding the individual, carrier, and rate environment constant.
Related terms
- Single premium immediate annuity (SPIA)
- Joint and survivor annuity
- Period certain annuity
- Cash refund annuity
- Installment refund annuity
- Annuity payment options
- Mortality credits
- Annuitization