If an annuitant dies before the effective date of a purchased annuity, what will occur?

When an annuitant passes away before the effective date of a purchased annuity, the correct outcome is that the interest will continue to accumulate tax-deferred. This is consistent with the typical provisions of annuity contracts that protect the investment made in the annuity. The insurance company will usually hold the funds and allow them to grow tax-deferred until they are either distributed to the beneficiary or withdrawn at a later date.

In this scenario, the annuity has not yet been activated or begun making regular payments; therefore, there is still an opportunity for the funds to earn interest. The concept of tax-deferred growth is a significant advantage of investing in an annuity, and this provision allows the beneficiary to benefit from the accumulation of interest on the original investment without immediate tax implications.

While other options suggest immediate returns or forfeitures, they do not align with the standard practices surrounding annuity contracts. The funds do not simply vanish or get returned to the insurer; rather, they remain intact for future use, which is why the tax-deferred growth option is accurate in this case.