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in BUS 3024S - Contingencies by (860 points)

I'm a bit confused with the Type 2 & Type 4 annuities. What is the intuitive difference between them?

I am under the impression that with type 4, the 'n' term/duration refers to duration of payments which starts for (y) after the death of (x) and for type 2, the 'n' term/duration refers to the duration of the policy and starts from the issue of the policy. So with type 2, the number of payments made to (y) after the death of (x) would depend on the time (x) died and how much longer (y) lived, whereas with type 4 it would only depend on how long (y) lives? Is this correct?


1 Answer

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by (990 points)

Hi, I'm not a tutor but here's my answer:

Type 2 refers to the annuity ceasing at time 'n' where n is independent of the lives. So it's a fixed point in time. So the 'n years' start counting at the beginning of the policy and not when the life dies ( life x in the notes). 

Type 4 refers to the annuity being payable for a maximum of n years (i.e. n years after the death of the life). So it is dependent on when the life dies and it not a fixed point in time. So these 'n years' only start counting once the life has died (given that the life receiving the annuity dies after the life in question).