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Types of Annuities Part 1: Immediate Annuity

An immediate annuity is where a lump sum has been turned into an income stream. The lump sum is no longer available, but instead a guaranteed income is being received that can payout over a person’s life expectancy. Overall the returns credited to an immediate annuity are very low, but the income guarantee is the real benefit.


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Have you ever heard that if you set up an annuity and die, the insurance company keeps the money? This is a common thought that many people have about all annuities in general, so let’s take a look at just how this can happen and you will see that it RARELY DOES happen. It all has to do with the payout option choice.


Payout Options

When you set up an immediate annuity the insurance company will usually give you a number of payout options which include the following:

  1. Life Only. This option gives the annuitant (the person who’s age the company is basing the payout on) the highest possible payout. The insurance company uses actuarial calculations based on life expectancy to determine the dollar amount they will pay the annuitant throughout their life time. THIS IS THE OPTION WHERE THE INSURANCE COMPANY WILL KEEP THE MONEY IF THE ANNUITANT DIES EARLY and there is still cash left in the account from the initial deposit.
  1. Life with 10 Year Period Certain. This option also pays out income throughout the annuitant’s life expectancy but if the annuitant should die before 10 years the insurance company will continue payments to the beneficiaries until 10 years of payments have been received by the annuitant and/or beneficiary. Normally this option will return the original principle with the guaranteed payment schedule, and is the more common choice than the life only choice.
  1. Period Certain. This option pays out income over a designated period of time, anywhere between 5 and 20 years. This will pay to the annuitant and/or the beneficiary the original deposit with some gains.

peace-of-mindThe immediate annuity has its place in income planning, such as providing a window of guaranteed income maybe before a pension or social security starts, or it can also serve as a guaranteed lifetime income as well. It pays to shop before choosing an immediate annuity, as some companies will offer higher payouts than others.

Thinking about using this as an option? Let us know we can help you analyze your situation and determine if it is a good fit, and also help you find the highest payout available.


 

Types of Annuities Part 2: Fixed Annuity

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