Get complete information on the Deferred Annuities

Get complete information on the Deferred Annuities

Payment of annuity starts after a fixed period called deferred period or deferment period. Since the premium has been received at the time of contract and payment shall start only at the end of the deferment period, the present value will defer with the deferment period. The survival rate will also be calculated after the deferment period. For Example:

Net Single Premium for Minimum Payment Annuity :

(i) Under this contract a minimum specified number of annuity payments have to be made on each contract irrespective of the death of the annuitant.

(ii) Thereafter annuity is paid so long as annuitant lives.

(iii) The probability of survival up to the fixed period will be treated as one because payment of annuity is certain up to this period and thereafter the actual probability of survival at that age will be taken into consideration.

(iv) It is a combination of Annuity certain and life Annuity. Therefore, for payments guaranteed for a certain period, the amount of annuity is certainly paid irrespective of death and survival rate is not required.

Net Single Premium for Annuity Due :

Under this, annuity payment begins from the start of the period and not at the end of the period. For example, if annuity is taken, on annual basis on 1st July, 1975, the first payment will be made at that time and second payment will be made on 1st July 1976, while in other annuity contract, it is the first payment.

Since first payment is certain it is not based on survival rate. In other words, for the first payment the survival rate is treated to one. Actuarial expression is:

Calculating of Net Level Premium :

The net level premium is collected periodically while, the net single premium is charged only once in the beginning of the contract.

The net level premium cannot be calculated first by dividing net single premium by the number of premiums payable in installments because in net single premium whole of the premium is received in advance and will remain invested until is paid as a claim whereas the net level premium will be invested.

The second reason is that the net single premium will be paid by all the policy-holders whereas the level premiums could be paid only by the surviving policy-holders.

The net single premium is the present value of all claims and the present value of all net level premiums is also equal to the total of present values of all claims.

It means the present value of all net level premiums is equal to the net single premium. So, if the present value of a unit level premium is known, the net single premium can be converted into level premium.