Life-Only, Joint-Life, Term Certain, and Life with Term Certain
A contract for an annuity is made with an insurance provider. Annuities are purchased by making a deposit with the insurance provider; in return, you can get a guaranteed income for a set amount of time. Annuities can be delayed, which means you let the money grow and obtain your guaranteed income later, or immediate, which means you receive income immediately.
You are required to select the term of the installments when you get income from an annuity. This also applies to pension plans that provide benefits in the form of annuities. The four most popular forms of payment are life-only, joint-life, term-certain, and life with term-certain.
- When you buy an annuity, you must decide on the length of time and timing of the payments you want.
- Life-only payments will continue while you’re still living, but they’ll stop right away when you pass away.
- If you’re married, joint-life payments might be acceptable since they will last for the duration of both partners’ lives.
- Term-certain payments are made for a set period of time and may continue even after your passing.
1. Life-Only Annuity Payments
Life-only payments are made for the duration of your life. But the moment you pass away, they end. The payments are guaranteed to continue for 40 or 50 years after you begin receiving them. This is accurate so long as the insurance provider remains in operation.
Each state has a mechanism in place to safeguard policyholders in the event that an insurance provider goes out of business. The rules in your state will determine this. However, there might be a cap on how much you can earn.
The insurance does not pay your heirs the remaining principal if you select a life-only option, begin receiving payments, then pass away a year later. A main return option might be available to you; this will cost extra. It makes life-only annuity payouts a preferable option for single people without kids. However, married couples might not find it to be a good option.
The monthly income payout from a life-only annuity term will be greater than a joint-life term’s.
2. Joint-Life Payments
The majority of the time, couples use these. Similar to life-only annuities, joint-life annuities are arranged with payments. The distinction is that payments will carry on for the duration of either spouse’s life.
The joint-life annuity choice guarantees that income will be continued to a surviving spouse even if you will receive a lesser monthly income than with a life-only option.
A number of pension plans provide a joint-life payment option. In place of receiving the whole benefit, the surviving spouse can instead receive 50% or 75% of it. This choice could be made if your spouse would require some but not all of your pension income upon your passing.
You will receive a somewhat smaller monthly income if you choose to continue 100% of the benefit to a living spouse as opposed to continuing 50% to a surviving spouse.
You must decide how your pension benefits will be paid out if you are married. Make sure to research all of your company’s pension survivor benefit choices. It will aid in your familiarization with the features as well as the benefits and drawbacks.
3. Term Certain Annuity Payments
These annuity payouts have a predetermined term and are also known as period certain. Payments are assured for at least 10 years when an annuity payout has a 10-year duration. Your designated beneficiary would continue to receive payments if you died within the first year, up to ten years following the first payment.
The original ten years of payments are over. When you have a supplementary source of income that won’t start until later, term certain annuities can be a useful strategy to generate revenue.
Consider the scenario where you retire at 60. However, your pension benefit won’t begin until you turn 65. To provide income for the five years between ages 60 and 65, you can think about purchasing a five-year term certain annuity.
For a younger spouse who is most likely to live a longer life, term guaranteed payouts can also be a wise decision. The word “certain” gives the elder spouse some protection in the event that the younger spouse dies first.
4. Life With Term Certain Payments
This choice provides income for the rest of your life or for a predetermined amount of time. You might select a life with a 10-year period, for instance. If you continue to live for 20 years after you begin making payments, you will continue to get money.
Your beneficiary would continue to receive payments for the remaining eight years of your 10-year term if you passed away two years after starting to receive them.
The Bottom Line
Any of these compensation possibilities is viable. The best option for you will depend on your age, health, and other financial resources, as well as whether you have dependents.
Even though the life-only option has the largest payout, it might be preferable to have a smaller payment and the peace of mind that the payments might go on even after your death in exchange for a lower payment.