In the context of investments in securities, what does the nonforfeiture value of an annuity represent before annuitization?

• A. The total interest earned on the annuity over its entire term.
• B. The sum of all future annuity payments after annuitization.
• C. The amount the annuity holder is entitled to receive if the contract is surrendered before annuitization.
• D. The face value of the annuity at maturity.

Answer: (C)

Verified step by step guidance

1. Understand the concept of nonforfeiture value: In the context of an annuity, the nonforfeiture value represents the amount the annuity holder is entitled to receive if they decide to surrender the contract before the annuitization phase begins.
2. Clarify the term 'annuitization': Annuitization is the process where the accumulated value of the annuity is converted into a series of periodic payments, typically for the lifetime of the annuitant or a specified period.
3. Differentiate between the options provided: The nonforfeiture value is not the total interest earned, nor is it the sum of future annuity payments after annuitization. It is also not the face value of the annuity at maturity.
4. Relate the nonforfeiture value to the surrender of the contract: If the annuity holder decides to surrender the contract before annuitization, they are entitled to the nonforfeiture value, which typically includes the premiums paid and any accumulated earnings, minus surrender charges or fees.
5. Summarize the correct interpretation: The nonforfeiture value ensures that the annuity holder receives a fair amount if they choose to exit the contract early, providing a safeguard for their investment.