TheWizard
Thinks s/he gets paid by the post
On the second part, you're wrong. The mortality credits are built into the pricing and are fixed at issue just like the benefits are fixed at issue... that is what the insurer is taking a risk on... that mortality will be as or better than assumed and for large groups of peope they are very, very good at estimating mortality. So if a bunch of insureds.. more than expected based on assumed mortality... die prematurely then that favorable mortality goes right to the insurer... in other words, if mortality differs from assumed mortality the remaining annuity owner's benefits don't change, so those early deaths don't ever benefit the remaining annuitants... if the remaining annuitants don't benefit then there is only one other party to the transaction and that is the insurer.
I sort of agree with you on this, but the point is, when you have thousands of annuitants who have been properly priced into an insurance company's annuity pool by their team of WELL PAID ACTUARIES, those early deaths have already been accounted for in their statistical planning, along with deaths of folks in their 90s.
So there's no big half million dollar bonus to the insurance company when someone dies within a year after annuitizing, since that probability was already factored into their rates.
And if one year seems to be to the benefit of the insurance company, then the following year could be the opposite, so they need to deal with that.
Now with TIAA, with which I annuitized a fair amount, we actually share in mortality experience which is "better" than expected, meaning more deaths in the year just past. We see this in our adjustments to our Variable Annuity payouts which slightly exceed the expected adjustment based on a strict 4% Assumed Investment Return.
TIAA splits the difference with its annuitants while most other insurance companies keep it as profit...
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