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Refundable income annuities: Feasibility of money-back guarantees

Author

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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. Vanya Horneff & Raimond Maurer & Olivia S. Mitchell, 2023. "Fixed and variable longevity income annuities in defined contribution plans: Optimal retirement portfolios taking social security into account," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(4), pages 831-860, December.
    2. Moshe A. Milevsky & Thomas S. Salisbury, 2025. "The Riccati tontine: how to satisfy regulators on average," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 50(1), pages 72-102, March.
    3. 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).

    More about this item

    Keywords

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    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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