Life Annuity - A Life-time Guarantee

By Author: Simon Cronje
Total Articles: 18
Comment this article

Making investment into an annuity is a wise decision on part of an individual to seek a series of guaranteed payment from his insurance company. A life annuity is a contract between the annuitant and his insurance provider to secure regular flow of income on the basis of either immediate payment of lump sum amount or a stream of regular payment.

The prime benefit of purchasing a life annuity is having an assurance of longevity insurance. Payment made by the insurance company to an individual continues for an indefinite period and gets terminated with the death of the annuitant. Immediately after the death of the person, the insurer fortifies the residue of the fund in absence of beneficiaries and annuitants in the contract. As the life span of an individual is very much uncertain, therefore he can include the others in the life annuity policy to minimize the uncertainty and maximize the number of payment. Such annuity is generally purchased to secure the easy sailing in the retired phase of life but can result from a legal settlement in the event of a personal injury lawsuit.

A life annuity comprises ...
... of two important phases. The first one is called accumulation phase and the last one is known to be distribution phase. In the accumulation phase, the annuitant makes payment in his account. The annuitants are allowed to make all the payments at one go or in installment. In the last phase, the insurer distributes the accumulated savings as a series of regular income until the annuitant expires.

Life annuity is of various types namely fixed annuity, variable annuity, guaranteed annuity, joint annuities etc. Fixed annuity is what results into a flow of fixed periodic payments. On the contrary, in case of variable category, the payment is made on the basis of investment performance that is not static in nature. Though variable life annuity is associated with some sorts of risk still it is the preferred choice for many due to the option of tax deferral. An opportunity to make the tax deferred adds to the growth of a person's saving. However the withdrawn money is subject to tax. Though the annuitants are not exempted from the tax payment still deferring them for a specified period definitely helps them experience a bulge in their income. If the annuitant dies before the annuity matures, the payment of income is made to the beneficiaries at a regular interval. Such situation is really unfortunate and the payment made is significantly smaller due to the facility of the reduced risk level. The annuitants can have the exact hang of the regular income with help of an annuity calculator.

Another category of life annuity is joint annuity, a favourite with the married couples. In this case, the insurer stops the payment after the death of the second spouse. But in case of the joint-survivor annuity, the payment does not cease through gets reduced as soon as the second spouse dies. Another form of life annuity is called impaired annuity. According to this annuity contract, if a person's life expectancy gets shortened due to his illness, the terms can be improved. Medical underwriting is a necessity in such a case but when life is full of so much uncertainty, such annuity can benefit the annuitants a lot.