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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Products

Mrs. Meenakshi retires and buys a life annuity with a return of purchase price (ROP) option for ₹20,00,000, with an annuity rate of 6% per annum payable annually in arrears. Which statement is correct?

With a life annuity with return of purchase price, Mrs. Meenakshi gets 6% of ₹20,00,000, that is ₹1,20,000 every year for life, and on her death the nominee receives the full ₹20,00,000 purchase price back.

  1. AShe receives ₹1,20,000 every year for life, and nominee receives ₹20,00,000 on her deathCorrect
  2. BShe receives ₹1,20,000 every year for life, and nothing is paid to the nominee on death
  3. CShe receives ₹20,00,000 after 10 years and then nothing
  4. DShe receives ₹60,000 every year for life, and ₹20,00,000 on death

Explanation

Annual annuity = 6% × ₹20,00,000 = ₹1,20,000 for life. With the return of purchase price option, the purchase price of ₹20,00,000 is returned to the nominee on the annuitant's death. The option without ROP pays nothing at death, so the second choice describes a different variant.

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