YOU ASK:

What is the definition of Annuity Cost?

WE ANSWER:

The Annuity Cost refers to the present value of the future regular payments. These regular payments (as specified by the annuity contract) are computed for and a mathematical model is provided to determine their present value.

The annuity cost may either be net or gross:

  • Net: The present value of the future payments minus the provision for expenses (charges that the investor may levy on the annuity).
  • Gross: The present value of the future regular payments with a provision for how much the annuity charges will be. Some of the charges may include life insurance component cost, administrative cost and other related costs.
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