Annuities

Q: What is an annuity and how does it pay out?

A: Life insurance companies issue two types of contracts which are really designed to handle "opposite problems": 

1) Life Insurance - This is protection against dying too soon and leaving your family short of money.

2) Annuity - This is protection against living too long and thus running out of money. "Annuitization" literally means you exchange a sum of money with an insurance company in return for a commitment to pay an income for life. Great if you live to 100; not so good if you die after two months. There is an element of insurance here as those who die early provide the funds for those who die late. Again, this is somewhat the opposite of life insurance, where those who live long provide for those who die early.

There are several payout options generally available:

Life-Only Annuity Option (Straight Life)

• The annuitant receives benefit checks each month for life
• When the annuitant dies, benefits end - there is no beneficiary
• Covers one person

Life Annuity with Period Certain

• The annuitant selects a minimum period of time for which payments are guaranteed
• When the annuitant dies, payments continue to the beneficiary for the remainder of the contract time selected
  

Joint Life with Last Survivor Annuity

• Covers two people and the contract will pay as long as one of the annuitants is alive
• Cash or Unit Refund Life Annuity
• If the annuitant dies before the value of the annuitant’s account has been paid out, the account will be cashed in and sent to the beneficiary. Again, we remind you to consult your tax advisor.