Life annuities are designed for clients who have insufficient savings and/or a very low risk tolerance to investing in the market.  There are four main types of annuities:

Straight Life:

These annuities are the simplest and will guarantee an income for life with payments starting immediately minus a premium.  This annuity does pay the highest amount for life, but when you die the payments stop and there is no payout to the estate.  The benefit from this plan is if you live longer than your life expectancy, you will benefit from the funds left in the pool by those who died earlier.

Joint Life:

These annuities last as long as either partner is alive.  There are a couple of options with this one.  You can buy an income-reducing annuity which is less costly, whereby the payment from the joint annuity declines when the first spouse dies.  There is also an option in this plan to guarantee the payout of the premium if you choose a cash payment provision.  When the annuitants die, the difference between the premium and the payout can then be paid to the beneficiaries.

Term-Certain:

In this annuity, payments are made for a specific period whether or not the annuitant dies.  You can manipulate your term from 3 to 40 years and most are highly flexible.  A cashable option is only available with this type of annuity since the convertible value can be easily calculated at any time.  If needed, you could cash in your plan in the event of a serious medical condition or financial emergency.

Deferred:

This annuity is often purchased long before the income from the product is required in retirement.  With this plan clients can take advantage of a slightly higher rate of interest by purchasing the annuity years earlier than actually required.  You will be encouraged to pay a higher premium during the deferral period, allowing interest to accumulate in the product and therefore increasing the overall value at the agreed upon conversion date when it switches to a paying annuity.

All annuities are insurance products and vary widely based on the provider.  Some insurance companies offer variable pay annuities which can be linked in part to the return of a specified stock market index.  These plans offer something for everyone.  Clients can choose an index tailored to specific profiles, such as conservative, moderate, growth or aggressive.  Depending on the insurance provider, you may even be able to choose a combination of indexes with variable payments.

Christine’s Tip:

Basically, a person chooses an annuity product because they don’t want to be concerned with the ups and downs of the stock market, and they want a “set-it and leave-it” strategy with a guaranteed monthly income for life.  Remember, most annuities cannot be cashed or altered after income payments have commenced.  Payments often cannot be adjusted to reflect changing needs, and the funds cannot be accessed in an emergency.  You are also giving up ownership of your investments and control of your capital to the annuity.  It cannot ever by used as a loan guarantee or reassigned.