Pros and Cons of a Life Annuity

The term life annuity refers to an insurance product where the buyer, also referred to as the annuitant, is contracted to receive a set series of payments over an agreed upon period of time. This product is most often provided by a bank or other financial institution such as an insurance company. In most cases these payments will cease upon the death of the annuitant and the remainder of the fund will be forfeited. Sometimes there will be a co-beneficiary, such as the buyer’s spouse in many cases, who will also collect benefits in case of the annuitant’s death.A life annuity is often purchased in order to fund retirement or to provide for a surviving spouse after death and in some cases they are provided under a structured settlement awarded from a lawsuit for personal injury. Annuities will typically have two distinct phases. First there is the accumulation phase during which the buyer will make payments into an account in order to build up a sizable amount of money. After the contract is fulfilled, typically upon the death of the individual, the distribution phase begins and the beneficiary will begin collecting an agreed upon series of payments.Because there are so many different annuities available it can be difficult for the consumer to find the one that best suits their needs. To simplify matters, most of them can be classified as either fixed or variable. The fixed variation will pay in consistent increments and when there are changes in the amount it will be increased or decreased by a fixed percentage. In the alternative variable rate, payments are determined by the performance of certain investments, such as bonds or mutual funds. These are typically chosen when one is trying to defer the capital gains for tax purposes.In cases where the annuitant is not certain how much longer they may live and is concerned about passing on before they can earn back the base of their investment they may be interested in purchasing a guaranteed life annuity. These buyers obviously do not want to have to forfeit their investment, so they may be interested in signing this clause which requires them to make payments for a certain number of years, and if they pass on before this period is fulfilled then the estate or beneficiary is entitled to collect the remaining payments certain.The joint life annuity is another popular option that married couples will typically take advantage of. These are also referred to as joint and survivor annuities and their payments will continue until both spouses have become deceased, either in the same amount or at a reduced figure as defined in the contract. There are also single life annuities that are preferred for single individuals as they will receive payments only up unto their deaths, after which the rest of the fund is forfeited and no other beneficiaries are able to collect the remaining payments.Before you make any investment decisions that could affect your retirement fund, it is recommended that you first seek advice from a financial agent whom you trust.

Life Annuities Basics

It can be extremely hard to save for retirement. It is hard to part with your hard earned money today so it can be used sometime in the distant future. It is just as difficult to save for college, purchasing a new home, and any other financial goals. For the average American, it is a struggle to be able to pay for the monthly bills and still find a bit of money to invest. Regardless of your income is important to put aside at least a little bit of money every week for savings. If this is done over a number of years a substantial amount of money can be put aside and if worked in into the right investments it can produce a secure financial future.For investors who are new or just leery of the stock market, life annuities are a great choice. This is a way that money can be put away on a consistent basis and then it is given the ability to grow. One of the most common fears is that an individual will outlive their money and have no income in the later years of their life. Purchasing and investing in a life annuity makes sure this does not happen. An annuity is designed in such a way that an investor is guaranteed an income for the rest of their lives. It can also guarantee a spouse or relative can reap the benefits of the annuities even when the major contributor has passed away. Having a life annuity means no matter how long you live you will draw the same income each month, even after the money from your original investment has been used up. Therefore you will never outgrow your money..Of course, where to put that money is an important decision as well. Annuities can be a good way to put money away on a regular basis and let it grow. Many people are fearful that they will outlive the money they have so diligently saved for retirement. Using a life annuity can help guarantee that this will not happen to you. Most life annuities have a set period of time period of time which the annuity will pay out (let’s say 10 years) or until the person dies, which ever is longer. If you have a life annuity and die after only 5 years then your payments will continue for another five years. Being paid out to your family. However, after 10 years, whatever money is left in your account belong to the annuity company. There is an optional (and more expensive) type of annuity which allows the remainder of the annuity to be paid out to a beneficiary after your death.For example if an individual paid $15,000 premium to create a life annuity, and then died after only receiving $5,000 worth in payment, the annuity owner’s beneficiary would be entitled to a refund of the difference. The difference in this case would be $10,000 dollars. If you have money that is readily available this is a great lost risk security option that works well for people who are not interested in the hassle of traditional stock portfolios.