Life Annuity (Leibrente)
A life annuity is a recurring payment owed for the entire remaining lifetime of the beneficiary, thereby transferring the biometric risk of longevity to the insurer.
Concept
A life annuity is a periodically recurring payment whose duration is tied to the life of a specific person (the annuitant) and which therefore ends upon that person’s death. Unlike a term annuity with a fixed agreed duration, a life annuity places the biometric risk on the insurer that the annuitant lives longer than statistically expected.
Distinction and Forms
In addition to a simple single-life annuity, numerous variants exist, including a joint-life annuity on multiple lives (e.g., married couples, where the annuity ends only after the death of both beneficiaries) and a life annuity with a guarantee period, under which a minimum number of annuity payments is guaranteed regardless of the annuitant’s survival. Where the life annuity is purchased with a single premium and payments begin immediately after the contract is concluded, it is referred to as an immediate annuity, as opposed to a deferred annuity with a preceding accumulation phase.
Relevance for Annuity Insurance
The life annuity is the characteristic benefit form of private and occupational annuity insurance; its calculation requires a careful estimate of future mortality trends, since a systematic underestimation of the life expectancy of the insured population (longevity risk) can lead to inadequate reserving.