Types of Life Annuities
1. Single Life Annuity
A single life annuity provides you with an income for as long as you live. Convenient and practical, a life annuity ensures you will never outlive your money. As with a joint life annuity, it can also be guaranteed for a certain number of years.
2. Joint and Last Survivor Life Annuity
This life annuity is payable while either you or your spouse are living. When one spouse dies, the survivor can continue receiving income payments as agreed upon when the life annuity contract was established. It may have been agreed that the income would be reduced by a given percentage.
3. Term Certain Annuity
A term certain annuity can be useful for planning ahead where you will require a specific or additional income for a pre-defined period. A term certain annuity provides you with an income for a set period or until a certain age.
Life Annuity Options
- Guaranteed Term - Payments are guaranteed for life and for a specific term (i.e. 0, 5, 10 , 15, 20 to the maximum age of 90).
- Indexing - Your life annuity can increase on lower payments
- Prescribed Inpaired - your life annuity can pay more for those with extremely serious health problems.
Life Annuity Payment Amount
- The life annuity payment amount is fixed and is based on:
- The amount of money used to purchase the life annuity
- The type of life annuity purchased
- Current interest rates
- The client's (and/or spouse's age)
- Current long term bond rates
Who is Most Suited For A Life Annuity?
- People nearing retirement
- early retirees wanting more before their pension kicks in
- retirees with limited financial management experience
- people desiring an income stream to cover specific fixed expenses
- anyone concerned about outliving their retirement savings
What Can A Life Annuity Do For You?
- Provide a regular, guaranteed income stream
- Fund a major expense such as a mortgage payment
- Avoids outliving your money
- Reduces risk and help diversify a retirement plan
- Helps protect a spouse's income with a joint life annuity.
Advantages and Disadvantages of Life Annuities
Advantages
- Stable and secure - life annuity payments never decrease even when interest rates fall
- No need to manage investments - life annuities may alleviate money management pressures
- Can provide guaranteed income for both parties when set up as a joint and last survivor annuity.
- Reliable income payments - regular income for the rest of your life
- Can be customized to meet your needs
Disadvantages
- You cannot change the payments.
- Even if interest rates rise, your life annuity payments do not increase.
Life Annuity Industry Statistics
- Life annuities will continue to form an important part of retirement income planning
- People are retiring early and living longer which creates a growing demand for life annuities since they ensure retirement funds do not run out.
- People are now financing their retirement because govenment pension plans may not provide adequate income.
- Life annuities are needed to complete a balanced, effective retirement plan
- People are more risk adverse and wary of market volatility, shifting their investments to more secure sources of income such as a life annuity.
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