Life annuity Annuity (American)

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a life or lifetime immediate annuity used provide income life of annuitant similar defined benefit or pension plan.


a life annuity works loan made purchaser (contract owner) issuing (insurance) company, pays original capital or principal (which isn t taxed) interest and/or gains (which taxed ordinary income) annuitant on life annuity based. assumed period of loan based on life expectancy of annuitant. in order guarantee income continues life, insurance company relies on concept called cross-subsidy or law of large numbers . because annuity population can expected have distribution of lifespans around population s mean (average) age, dying earlier give income support living longer money otherwise run out. form of longevity insurance (see below).


a life annuity, ideally, can reduce problem faced person when don t know how long live, , don t know optimal speed @ spend savings. life annuities payments indexed consumer price index might acceptable solution problem, there thin market them in north america.


life annuity variants

for additional expense (either way of increase in payments (premium) or decrease in benefits), annuity or benefit rider can purchased on life such spouse, family member or friend duration of life annuity wholly or partly guaranteed. example, common buy annuity continue pay out spouse of annuitant after death, long spouse survives. annuity paid spouse called reversionary annuity or survivorship annuity. however, if annuitant in health, may more advantageous select higher payout option on or life , purchase life insurance policy pay income survivor.


the pure life annuity can have harsh consequences annuitant dies before recovering or investment in contract. such situation, called forfeiture, can mitigated addition of period-certain feature under annuity issuer required make annuity payments @ least number of years; if annuitant outlives specified period certain, annuity payments continue until annuitant s death, , if annuitant dies before expiration of period certain, annuitant s estate or beneficiary entitled remaining payments certain. tradeoff between pure life annuity , life-with-period-certain annuity annuity payment latter smaller. viable alternative life-with-period-certain annuity purchase single-premium life policy cover lost premium in annuity.


impaired-life annuities smokers or particular illness available insurance companies. since life expectancy reduced, annual payment purchaser raised.


life annuities priced based on probability of annuitant surviving receive payments. longevity insurance form of annuity defers commencement of payments until late in life. common longevity contract purchased @ or before retirement not commence payments until 20 years after retirement. if nominee dies before payments commence there no payable benefit. drastically reduces cost of annuity while still providing protection against outliving 1 s resources.







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