Lifetime Annuities Contingent On Individual’s Life
When exploring different types of annuities, it is important to familiarize yourself with the assorted terms and variations of contracts that you may encounter. While annuities are quite simple in their explanation, they can be quite daunting in the details. A simple fixed annuity usually does not really exist. It is coupled with addendums, riders, provisions, and stipulations. These tend to confuse rather than clarify the product to the prospective consumer.
Annuities come in one of two forms, contingent on life, and not. The lifetime annuities are contingent on an individual’s life. This means that the contract is tied to the life thread of that person. Should the covered individual die, the contract dies with them.
In opposition, the annuity may be created as an annuity certain. This means that the duration of the annuity not dependent upon the survival of any one individual. The contract is created to provide payments for a predetermined period of time, and will continue to pay out until that set period is met. Should the recipient of the annuity pass away before the completion date of the contract, either secondary beneficiaries or the heirs of the original beneficiary will receive the remainder of the payments.
Annuity certain contracts are actually easier to determine for the insurance companies, as it takes the guesswork out of the contract. All sides know how much the annuity will cost, how long benefits will be paid out, and what the duration of the contract will be.
Lifetime annuity contracts can be somewhat more difficult to calculate. Many of these types of contracts have provisions built in that provide income for the beneficiary for the duration of the covered person’s lifetime. As long as the person lives, the contract makes the established income payments.
To determine the cost of these types of contracts, the insurance company uses annuity life expectancy tables to estimate the coverage span of the policy. The guaranteed income is an excellent way to ensure that the deferred annuity owner never runs out of income before they die. As such it is used frequently in retirement planning purposes.
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