What is an annuity life expectancy table?


Quick Answer

An annuity life expectancy table is a statistical model used by insurance companies to predict how long a person benefiting from an annuity investment product can expect to receive payments, according to Investopedia. The table helps an insurance company calculate how much it may ultimately have to pay out under an annuity, which determines how much it charges the person investing in the product.

Continue Reading

Full Answer

An annuity is an insurance product that pays out a stream of income at a future date, typically as part of a retirement strategy, as explained by CNN Money. The insurance company offering this annuity uses a life expectancy table to calculate how long the recipient may live, so the company doesn't end up paying an income stream for years beyond what the original investment in the annuity justifies.

Insurance companies typically use government data on U.S. life expectancy from the U.S. Social Security Administration or the National Center for Health Statistics to construct an annuity life expectancy table. Alternatively, companies use the U.S. Internal Revenue Service's actuarial tables for valuing annuities for income tax purposes. The tables are based on the most recent U.S. Census data, according to the IRS.

A person's gender, place of birth and race affect life expectancy, according to Investopedia. People with longer life expectancies can expect to pay more for an annuity, since the future payout stream is potentially longer.

Learn more about Insurance

Related Questions