Life Annuity, Increasing Income implies:

Life Annuity, Increasing Income implies:

• A. Decrease annually
• B. Remain level
• C. Increase annually
• D. Double after 5 years

Answer: (C)

In a life annuity with increasing income, the payments grow each year rather than staying the same. The escalation can be a fixed amount or a fixed rate, so the retiree’s cash flow rises over time to help keep up with rising costs or inflation. Because of this growth, the initial payout is typically smaller than a level life annuity funded for the same price, but the total amount received over a longer retirement can be higher if life expectancy is long. It’s not a decreasing or constant payout, and it doesn’t double after a set period; the defining feature is the annual increase in payments.

In a life annuity with increasing income, the payments grow each year rather than staying the same. The escalation can be a fixed amount or a fixed rate, so the retiree’s cash flow rises over time to help keep up with rising costs or inflation. Because of this growth, the initial payout is typically smaller than a level life annuity funded for the same price, but the total amount received over a longer retirement can be higher if life expectancy is long. It’s not a decreasing or constant payout, and it doesn’t double after a set period; the defining feature is the annual increase in payments.