Fixed Period vs. Lifetime Annuities
One of the variables that make annuities so flexible is that it gives you control over when you will get your income. You can choose to have payments made over a fixed period, or for your lifetime. The following describes these two payment periods.
Fixed Period Annuities
With a fixed annuity, you are paid a specified or fixed amount over a fixed period of time. The amount of time is usually a function of the years during which regularly scheduled payments are made to you.
Although the name implies rigidity, fixed annuities do offer some level of choice. You can determine the amounts you will be paid. You can also decide when you will be paid, whether on a monthly, quarterly, biannual or annual basis. You can also choose the time period in which you are paid. Typically, fixed annuities are sold in time periods of five, ten, fifteen or twenty years.
Some insurers offer annuity contracts that allow you to control the amount paid in each payment or the time frame over which you will receive payments. The total amount the issuer pays remains fixed. Payouts made over a short time span will be of larger incremental amounts than payouts spread over lengthier durations.
A fixed period annuity might be a good option for you if you have a specified period of time that you will not be earning income. For example, if you were retired, an annuity could provide income after regular income has ceased but before retirement or other benefits begin.
It is important to remember with fixed annuities, if you die before the established payout period has elapsed, the remaining annuity can be transferred to a beneficiary.
According to LIMRA's analysis of 55,000 immediate annuities issued in 2008 and 2009, nine out of ten immediate annuity buyers choose payments that were guaranteed for a certain period of time or provided a refund guarantee that enabled beneficiaries to recoup some or all of the remaining premium.
Lifetime Annuities
According to a 2010 survey from Allianz Life Insurance Co., 77% of people between the ages of 44 and 49 say they fear outliving their assets more than they fear death. A lifetime annuity is one way to curb that fear.
A lifetime annuity pays income as long as you live. Payments stop when you die. What you are doing when you enter a lifetime annuity contract is betting against the insurance company. You are betting that you will outlive your life expectancy. The insurance company is betting that you will not.
As the trend of people living longer continues to increase, lifetime annuities gain in appeal because many annuity holders are now collecting more than they invested.
According to LIMRA’s analysis of 55,000 immediate annuities issued in 2008 and 2009, 70% of the immediate annuity buyers purchased lifetime guaranteed income contracts.
Fixed lifetime annuities are safe and conservative retirement planning tools. Most annuities protect against loss of income. Lifetime annuities guarantee that you will receive income at regularly scheduled intervals for as long as you live.
Many insurers offer lifetime annuity contracts featuring death benefit provisions.
A common death benefit that accompanies some lifetime annuities is a guaranteed term. With a guaranteed term, the annuity promises to continue to pay your family during the specified term, even if you died. For example, if you have a lifetime annuity with a ten-year term and you died after the first year, the insurance company will continue to pay your family for the next nine years.
Some insurers have lifetime annuity contracts that offer the option of a lump sum pay out to your beneficiaries at your death. The lump sum is calculated by taking the amount you paid into the annuity, adding the investment growth, and subtracting the insurer’s expenses. If your annuity enjoyed healthy investment gains throughout the accumulation period, it is possible to have your lump sum payout exceed your purchase payments. Lump sum contract language varies by issuer and state of issue.