Get the Lowdown on Life Annuities

There are two main types of fixed annuities: life annuities and term certain annuities.

Let’s look at life annuities.

Fixed annuities are purchased from insurance companies or financial institutions with a lump-sum payment or a series of payments made over time.

The money invested in the annuity is guaranteed to earn a fixed rate of return throughout what is called the accumulation phase of the annuity.

Life annuities pay a predetermined amount each period until the death of the annuity holder.

Straight life annuities are simple.

They pay a set amount per period to the annuity holder until he or she dies.

There is no payout to beneficiaries when the annuity holder dies.

Because there is no other type of insurance component in this type of annuity, it is less expensive.

But there are several other kinds of life annuities.

They differ in the insurance components they offer the annuity holder.

In other words, they may alter the payout in the event of something negative happening to the annuity holder, such as sickness or early death.

For example, life annuities with a guaranteed term allow the annuity holder to designate a beneficiary, so if the annuity holder passes away before the term ends, the beneficiary will receive the sum of the money not paid out.

Similarly, joint life with last survivor annuities continue payments to the annuity holder’s spouse after the annuity holder dies.

They also allow the annuity holder to designate additional beneficiaries to receive payments in the event of a spouse’s sooner-than-expected death.

Annuities are clearly complicated.

It is therefore best to contact my office if you are interested in an annuity.