Life Annuities

A life annuity is a financial contract. It is in the form of an insurance product in which a seller makes a series of future payments to a buyer. These payments are in exchange for the immediate payment of a lump sum or series of regular payments. This occurs before the onset of the annuity. The seller is typically a financial institution such as a life insurance company.

There is a payment stream from the seller to the annuitant, and it typically has an unknown duration. This is based principally upon the date of death of the annuitant, and the contract will end at this point. The remainder of the fund is forfeited. If there are other beneficiaries or annuitants in the contract, they will get the remaining fund.

A life annuity is a type of longevity insurance. The uncertainty of a person's lifespan is transferred from that to the insurer. This decreases uncertainty by pooling plenty of clients. Annuities can be purchased to supply income during retirement. It originates from a structure settlement of a personal injury lawsuit as well.

Type Of Life Annuities

Fixed and Variable Annuities

Fixed annuities are annuities that make payments in fixed amounts. They can also be paid in amounts that increase by a fixed percentage. Variable annuities pay amounts according to the investment performance of a specified set of investments. These investments are basically bond and equity mutual funds. Variable annuities are utilized for various objectives. Deferral of the recognition of taxable gains is one of the common objectives that variable annuities are used. When you deposit money in a variable annuity, it grows in a tax-deferred basis. This is done so that the taxes on investment gains are not due until a withdrawal is made. Variable annuities offer a variety of funds or subaccounts. Different money managers offer these, and investors can move subaccounts. Investors will have the ability to do this without incurring extra fees or sales charges.

Guaranteed Annuities

When it comes to a pure life annuity, annuitants may die prior to recovering the value of their original investment. This situation is called forfeiture. If forfeiture is not desired, a clause can be added. A guaranteed annuity is formed. This means that the issuer is required to make annuity payments for a certain number of years. This is called the period certain. The annuity payments continue until the annuitant's death if the annuitant outlives the specified period certain. The annuitant's beneficiary or estate is entitles to collect the remaining payments certain if the annuitant dies before the expiration of the period certain. There is a trade off between these two annuities. A reduced risk of loss is the exchange for the annuity payments being smaller with the life with period certain annuity.

Joint Annuities

There are multiple products that include joint and joint survivor annuities. The payments will stop upon the death of one or both of the annuitants. For instance, there may be an annuity structured to make payments to a married couple. These payments stop upon the death of second spouse. Sometimes the instrument decreases the payment to the second annuitant after the death of the first annuitant in joint survivor annuitant.

Impaired Life Annuities

These types of annuities have had a significant growth in development, and involve improving the terms offered because of a medical diagnosis severe enough to decrease life expectancy. There is a process of medical underwriting involved. The range of qualifying conditions has increased in recent years.