Life insurance annuity, or simply called life annuity, is a type of financial contract that usually takes place between the insured and an insurance company where the first makes payments to the latter in order to receive future payments. The insured has to make payments immediately, either in a single sum, which is called single-payment annuity, or in a series of regular payments called regular-payment annuity. These payments are made before the onset of the annuity, and they are similar to a private pension.
People usually get a life insurance annuity in order to supplement their finances for retirement; that way, besides the regular pension, they also receive monthly annuities from the insurance company. One of the advantages might be the fact that you can end up receiving more than you paid, because the insurer has to send the annuity until de death of the policyholder. If, however, the sum paid by the insured is larger than he or she gets to spend or receive, the sum remaining is forfeited and taken by the company. In order to avoid this mistake, some people add beneficiaries to their life annuities, so they get to receive the money after the insureds die. Moreover, there can be more than one annuitant in a single life insurance annuity, so when one of them dies, the surviving one receives the rest of the money.
Basically, a life insurance annuity is a longevity insurance, helping people live their lives in comfort and without worries for the future; because you never know how long you will live, having some sort of financial security is necessary, especially at an advanced age when you can’t produce anymore. As for the life insurance company, it reduces its risks by amassing as many clients as possible; that way, there is always money in the company from someone. So far we have discussed the possibility of getting life annuity as a supplement for retirement, but there are other cases where one can get annuities.
One of them is as a result of a personal injury lawsuit, where the person suffering injury receives compensation for their suffering, or because the injury has left them unable to care and provide for themselves. Furthermore, there are two phases for an annuity:
There are also several types of life insurance annuity, as follows:
Fixed annuities pay fixed monthly amounts or amounts increasing by a predetermined percentage; variable annuities however, pay variable amounts that are influenced by the investment performance of a certain set of investments like mutual funds.
This can be used by those who fear they will die before getting to collect on their annuities and thus forfeit the whole sum they have invested. Thus, you can add a separate clause to your insurance whereby the insurer is forced to pay a certain sum and to make payments for a fixed number of years. On your policy, this is called “period certain”.
This type of annuity can be taken by more than one person, such as a couple for example; it is called joint-life or joint-survivor annuity, and it makes payments until both insureds die. When the first one dies, the surviving one still receives the annuities until the end of their life.
These are usually normal life annuities which are subsequently changed, if the insured’s condition is changed, and they get a medical diagnosis that indicated their life might be shortened. Thus, it may be possible to get an increased annuity in order to avoid forfeiting a part of the sum owed to you, but also because your costs of living are increased.
These are the basic concepts you need to know about life annuity; if you are interested in getting one, ask your local insurance companies to offer you some life insurance quotes and see which is more advantageous to you.