That would be true if they purchased a “Life Only” option, but there are so many more “options”. When receiving an immediate annuity quote, it is vital to know you have those options, as well as understand which one is the best immediate annuity quote for you. And in addition, that you can select Single Life Payout Options or Joint Life Payout Options whether your funds are Qualified (if spouse) or Non-Qualified.
While immediate annuities are not a fit for everyone, they can provide security of a systematic income you cannot outlive. Without properly understanding the differences in all of the options available, it can seem overwhelming and end up causing one to fail to make a decision to purchase. By not making a decision, it could impact the overall goals for your retirement and place undue stress on your liquid assets.
The biggest downside of a single premium immediate annuity is losing control of your money (unless a carrier offers a commuted value inside the immediate annuity features; but those are rare and often times will not provide the highest payout). Even with an immediate annuity that offers a commuted value, your liquidity can be quite limited, lower your payment and you can even end up absorbing some loss because of the commutation formula. Keep in mind that the single premium immediate annuity is meant to maximize the payment you receive by giving up the control and allowing the insurance company to be assured they have your funds for the maximum amount of time, based on your life expectancy.
Why an Immediate Annuity?
So what are the key things to know about the different payout options?
• Period Certain: it provides a stream of income for a specific time frame usually 5 – 20 years and does not include a lifetime benefit.
• Lifetime Only: it provides a stream of income for the insured’s lifetime based solely on the person’s life expectancy. The downside of this payout is if the insured passes away prior to the funds being returned via lifetime payments, the insurance company keeps the remaining funds.
• Lifetime with Period Certain: it provides a stream of income for the insured’s lifetime based on their life expectancy with a Period Certain (typically 5 – 20 years). If the Period Certain is longer than the life expectancy, it will lower the lifetime payout; and on the contrary if the Period Certain is shorter than the life expectancy, it may increase the lifetime payout. If the insured dies prior to the full term of the Period Certain, this may mean the insurance company keeps the remaining funds.
• Lifetime with Cash Refund: it provides a stream of income for the insured’s lifetime based solely on the person’s life expectancy. If the initial premium has not been paid out via installment payments, the remaining amount is refunded to the beneficiary(s).
• Lifetime with Installment Refund: it provides a stream of income for the insured’s lifetime based solely on the person’s life expectancy. If the initial premium has not been paid out via installment payments, the payments will continue to the beneficiary(s) until the initial premium has been paid out.
So again, keep in mind that each of these payment options are available on Single Life or Joint Life. When it comes to Joint Life, keep in mind that the systematic payout will be lower. The further apart the two person’s ages are, the lower the payout. And in addition, females have a longer life expectancy, so that too can affect the payment as they are not unisex quotes.
There are several annuity quote engines online today that will give you a snapshot of what the payout would be based on premium, age, sex, and the payout options, but even those may not be accurate as some carriers change the internal rates quite often, even inside of each month.
Some agents will talk about the internal rate of return for the immediate annuity, but that is not the proper way to assess which quote and company is best for you and your family. For example; Company A may state they have a higher rate of return, but their maintenance fees and the commissions they pay the agent may be higher than Company B. So even though the internal rate of return is lower at Company B, their maintenance fees and commissions may be lower, allowing more money to be paid out via the installment payments to the insured. Each company may also have different life expectancy tables, which can impact the payment. So the only way to be sure you are getting the best option is to compare identical quotes, such as “lifetime with installment refund” vs. “lifetime with installment refund”. Occasionally, you will find a lifetime with cash refund payout option very similar to a lifetime with installment refund option and that may prove to be worth taking a slightly lower payment to via the cash refund option to pass on the funds via a lump sum payment upon death of the insured.
After servicing hundreds of millions of dollars of annuities over the past decade plus and seeing so many consumers purchase the wrong payout option because of a lack of education or misunderstanding their selection, it is truly imperative to work with an insurance agent you can trust. For them to know what is best for you, they must have a complete understanding of the various payout options so they can offer you advice you can trust. Here at Pacific Insurance Group, we train our agents on the various options so they can guide you through these choices and help you feel peace of mind that you have made the best decision for you and your family.