Life Annuities

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Life Annuity – A Lifetime Opportunity

March 14th, 2023

A life annuity is a contract with the insurance company, where a seller or the issuer i.e. the life insurance company makes a series of payments to the buyer in the future, in exchange of an immediate lump sum payment or a series of regular payments. The flow of the payment is an unknown duration primarily based on the death of the annuitant. The contract terminates on the death of the annuitant, if there are no beneficiaries following the annuitant, whose name has been mentioned in the contract. Thus life annuity can be termed as longevity insurance.

Phases

There are mainly two important phases for life annuity- the accumulation phase and the distribution phase. The accumulation phase is the phase of the customer depositing the money into the account. The distribution phase is the phase where the insurance company makes income payments until the death of the annuitant or annuitants named in the contract. The phases of the annuity can be combined as retirement savings and retirement payment plan. The payments can also be as the annuitant makes a regular contribution to the annuity until a certain period and then starts receiving regular payments from it until death.

Types of Life Annuity

Fixed and Variable annuity – Annuities whose payments are made in a fixed amount are called fixed annuities. Variable annuities on the other hand pay amount that vary according to the investment performance. There are many objectives that can be stated for the use of variable annuity. One recognizable fact is for the motive of tax deferral. Money deposited on the variable annuity grows on the basis of tax deferral. Therefore the taxes are not due until a withdrawn is made. Variable annuities also provide a variety of funds from the various money managers or the investment managements.

Guaranteed Annuities

There are chances that the annuitant may die before the recovery of the value of the original investment. This possibility of the situation is called forfeiture. This is an undesired situation. In this case the annuitant’s beneficiary continues to receive the amount at regular intervals. The tradeoff that is found between the pure life annuity and the life-with-period certain annuity is that in exchange of the reduced risk of loss, the annuity payments for the latter will be smaller.

Joint Annuities

Annuity products include joint – life and joint – survivor annuities. In this type the payments cease with the death of one or both the annuitants. In case of an annuity for a married couple payments may cease on the death of the second spouse. In joint-survivor annuity the payment is reduced to the first annuitant with the death of the second spouse.

Impaired Annuity Payments

In case the annuitant’s life expectancy has been reduced due to a severe medical problem the terms for the payment of annuity are improved. This type of annuity is known as impaired annuity. It involves a process of medical underwriting. This type of annuity has developed to a great extent with the growing time.

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Joint Life Annuities: Protecting Your Loved One’s Future

February 14th, 2023

As you grow old with your partner, you tend to share more and more. In addition to possibly sharing a home, you might share a car and a number of financial products. Joint bank accounts and joint mortgages are a prominent notion amongst with many couples. However the financial offerings for loved ones do not stop there. Many people opt for joint life annuities in later life in order to protect their partner in the event that the worst should occur.

Although we all hope that we will be able to look after our loved ones as long as we live, we cannot predict the future. This is why many people decide to take measures within their control in order to provide for their spouses regardless of what the future holds.

What is a joint life annuity?

A joint life annuity works in a similar way to the standard annuity; offering consumers an income throughout their retirement period in exchange for a lump sum which usually stems from a pension fund. Annuities provide a method of financial security which can be sustained for your full retirement period.

The way that a joint life annuity differs is that this type of annuity is paid to both you and your partner and will continue to provide an income to your partner when one of you passes away. This is often known as the ‘last survivor’ annuity as the surviving annuitant will receive payments for the remainder of their existence.

Would they receive the full amount?

This would be a decision made when taking out the annuity. You can opt for your partner to receive the full amount of the annuity but most annuitants choose for annuity payments to be either 1/3, 1/2 or 2/3 of the original income in the event of death.

How much will I receive?

As with all annuity payments, the amount of income that you will receive is calculated based on a number of factors including your age, your health, your sex and your lifestyle. The provider will utilise these and a number of other factors to gauge an estimated life expectancy which your annuity rate will then be based on. With joint annuity packages, the life expectancy of your partner will also be considered by your provider.

Are there any drawbacks?

Because providers will be paying out for the remainder of two lives instead of one, joint life annuities tend to be a more expensive annuity option. This means that income payments you receive are likely to be less than a single life annuity. As providers evaluate the life expectancies of both the annuitant and their partner, issues can occur when one partner is considerably younger or healthier than the other and this could also affect the amount that you receive.

Deciding which annuity to go for is a decision which will affect the rest of your life therefore it is important to do your research in order to ascertain which option best suits your needs. Speaking to an annuities advisor could help you to work out the best annuities option for you and your partner giving you an idea of how much you could receive.