Page 32 - Life Assurance

ifetime income that cannot be outlived. It
protects against the loss of income because of
excessive longevity and exhaustion of saving.

Annuities are possible because the risk of
excessive longevity is pooled by the group.
Individuals acting alone cannot be certain that
their savings will be sufficient during retirement.
Some will die early before exhausting their
savings, whereas others will still be alive after
exhausting their principal. Although the
insurance company cannot predict how long any
particular member of the group will live, it con
determine the approximate number of annuitants
who will be alive at the end of each successive
year. Thus, the company can calculate the
amount the each person must contribute to the
pool. Interest can be earned on the funds before
they are paid out to the annuitants. Also, some
annuitants will die early, and their unliquidated
principle can be used to provide additional
payments to annuitants who survive beyond
their life expectancy.

Thus, annuity payments consist of three
sources :

(1) Premium payments, (2) Interest earnings,
and (3) The unliquidated principal of annuitants
who die early.

132 Life51/life/life 08