What determines the annuity payments in a standard annuity agreement?

In a standard annuity agreement, the annuity payments are primarily determined by the annuitant's life expectancy. This is because annuities are designed to provide income over a set period of time, often for the lifetime of the annuitant. Actuaries calculate the expected duration of payouts based on the annuitant's age and health, which helps to establish how much will be paid out monthly, quarterly, or annually.

While the total amount paid into the annuity and the type of premium payment contribute to the overall value and payout structure, the specific calculations for the periodic annuity payment will be heavily influenced by the life expectancy of the annuitant. This reflects the insurance principle where the longer the life expectancy, the lower the payment may be, as the insurer anticipates more extended payment periods.

The age of the policyowner can have implications on the initial setup of the annuity, but it is the life expectancy of the annuitant that provides the critical determinant for the calculation of ongoing payments. Therefore, focusing on life expectancy aligns with the financial planning and risk assessment components inherent in annuity agreements.