Without the most compelling evidence a caring judge might be very reluctant to rule that the unfortunate victim before him was certainly going to die at some date much earlier than normal life expectancy. An annuity issuer on the other hand is not faced with the onerous task of ruling on the future economic well being of a plaintiff and can easily categorize a given accident victim's injuries and ascribe a life expectancy assessment within which that individual may be grouped. Whether he lived too long or died too soon would not be of concern to the insurer since it need only be concerned with averages. As a result, annuity issuers often attribute a much more pessimistic life expectancy than do the medical experts or the courts. The fact that major annuity issuers compete fiercely with one-another further enhances the defendant's opportunity to purchase an annuity priced on the basis of the most pessimistic assumptions.
Some annuities provide increases each year, typically to offset inflation.
These are referred to as indexed annuities. The indexing rates normally vary from 2 to 4 percent annually and it is possible to purchase annuities indexed to the actual rate of inflation. To provide increased payments in the later years the issuer holds back a portion of what otherwise would be paid to the annuitant and reinvests it. Misunderstanding can often arise with respect to assessing the rate of return on indexed annuities. The rates of return on level annuities are relatively easy to estimate but not so easy on indexed annuities.