Types of Annuity Settlement Options
Annuity Settlement Options
What is Annuity?
Before we discuss your Annuity Settlement Options Let's go over what an annuity actually is.
Put simply an annuity is income or series of payments that derive from an investment previously made.
Most commonly an annuity is an insurance product such as a life insurance policy with a fixed rate of
premium that the policy holder makes payments on to the company. The annuity therefore has two phases
being the accumulation phase and the phase of repayment.In the accumulation phase of your annuity settlement options you as the policy holder make regular payments to the structured settlement company over a predetermined number of years and the insurance company invests this money.
In the second phase of the annuity namely the repayment phase, the invested money is paid to the policy holder along with the accrued interest which has built up over the years. This payment may be in the form of a lump sum or in a structured settlement paid incrementally over a period of time and are known as settlements.These insurance investment products vary according to terms and conditions of the policy.
So What are Your Annuity Settlement Options?
The following are annuity options that are available and being used by many people today.
Refund annuity
This annuity settlement option requires payments to the policy holder throughout their life, but guarantees the return of the original
amount paid to the annuity. This means if you were to die before the original lump sum has been paid the remainder would be paid to your beneficiaries.The premium on a refund annuity plan is commonly higher than on other annuity settlement plans.
Situations where a refund annuity might be suitable are:
- If You are cosidering retirement from work.
- You want an insurance settlement option that offers regular payments for as long as you live.
- • You want to reduce your income taxes.
- Your social security benefits are not enough to sustain your lifestyle in retirement.
- You want to conserve your principal amount.
How a Refund Annuity Works
In a refund annuity plan, the insurance company makes payments to you for your whole life.This insurance settlement option also assures a return of the initial investment if the annuitant should die before all of the periodic installment payments have been made.Opting for this this annuity offers favorable refund stipulations and death advantages.There are two kinds of annuities that are most commonly being used today.
There is the installment refund annuity where payments are made for the lifetime of the annuitant but should an individual die before the payout for the minimum number of years specified in the policy then disbursement payments will continue until the initial specified timeframe is concluded.
In the other type of annuity plan in the case of the annuitant's death occuring before the minimum number of disbursements have been made or before the pre-determined time period has been reached then premiums are paid to beneficiaries either in whole or in part as a lump sum payment.
If you are considering a long term investment for retirement and want a plan that will meet your needs for the rest of your life then a
refund annuity could be the right annuity settlement option for you.
Joint life
How Joint Life Annuity works
Joint life insurance is when two or more individuals are covered with the death benefits being paid at the first death. Premiums are considerably higher than for policies insuring just one individual as the chances of having to pay a death claim is higher for the
structured settlement company.After the maturity of the joint life annuity policy both policy holders are repaid equal amounts over a certain time period. In the case of one of the annuitants death the remaining amount is repaid to the other person.
Most commonly joint life insurance products are used by spouses and partners in business. It offers coverage best suited for people involved in some kind of co-dependent relationship where if one spouse or a business partner dies the surviving spouse or partner would financially vulnerable.
A different type of a joint life insurance policy however pays out on the second death not on the first death as above.This policy option may be useful to people with high risk occupations that have a common interest in protecting the same people or assets. As an example a second death life insurance policy could be set up as a trust for a couples children.On the death of the second parent the children will receive payment without having to go through the process of probate in court.
One should consider whether it is more beneficial to use a joint life insurance policy and pay the higher premiums or to go with two individual life insurance policies each for the equivalent amount of coverage.
A joint life insurance policy may be more expensive than a policy that covers just the one death but two individual policies may end
costing even more for the combined cost of the premiums.For businesses a joint life insurance policy is usually recommended by financial advisors as they need find every possible way of save money to increase there bottom line.
Joint life insurance policies are considered the more favorable option for businesses. Small businesses consisting of just two partners such as a family owned business owned by a husband and wife benefit greatly from a joint life insurance policy which helps to ensure that the business can continue to operate financially at least should one of them die.Also as stated above joint life insurance can work great as an estate planning product in the case of both parents dying.
Another option when considering joint life insurance is as mortgage protection for couples. This can be a consideration when one of the spouses doesn't have mortgage protection life insurance and there is an outstanding mortgage balance that remains.It is more advisable however for each spouse to have their own life insurance for mortgage protection in the case of the other's death.
In a marriage with two incomes and those incomes are not the same one of the spouses could possibly benefit too much with the other too little if a payout had to be made on a joint life insurance policy.Furthermore with the statistical likeliehood of divorce if both people have their own individual life insurance it would remain with them them.Having a joint policy would likely result in neither party wishing to pay the premiums anymore and the policy would lapse leaving them both without coverage.Plus if divorce occurs and the couple have children they could be left vulnerable as well.So depending on the situation a joint life insurance policy can be a good choice.
Term Life
What is A Term Life Annuity?
Also known as a term assurance policy a term life annuity insurance policy is a life insurance product that gives insurance coverage for a limited period of time.The term life policy involves fixed rate payments as with normal life insurance policies and it is really just the term period that differentiates the two. When coverage expires in a term life insurance policy contract the insured needs to obtain another coverage.
The benefits term life insurance provides are that it is the least expensive way to get good benefits out of an insurance policy.If the
insured dies before the term life period their beneficiaries are entitled to a payout as per the policy. A downside can be that if the
insured falls victim to a terminal illness during the term of policy and is fortunate enough to survive,getting further life insurance may not be possible life after the current policy expires as they would be be deemed uninsurable.However some term life insurance policies come with guaranteed reinsurability clauses but the premiums would be quite substantial.
How does Term Life Insurance Work?
In normal life insurance a guaranteed lump sum of capital accrues over time to provide beneficiaries with an income in the case of your death.This is not the case with term life insurance however there is no cash accruing it is merely an instrument designed to create a required sum of survivor capital for low payments for a fixed term. In choosing term life insurance the objective is receive the necessary amount of coverage needed for ones basic family security for low out-of-pocket cost, especially for younger individuals.
To benefit fully from term life insurance policies you should select the term duration that suits your needs best.This entails analysis of our long term debt and future financial requirements.You should consider the various term life insurance options and go with the policy that fits best your future plans.
Three common types of term life insurance policies are:
Level Term Life Insurance: Here rates and coverage amounts stay the same through the term of the insurance policy.
Decreasing Term Life Insurance: While the rates remain the same the coverage amount decreases every year.
Annual Renewable Term Life Insurance: Here the term life insurance policy offers guaranteed renewals every year but with a rate increase at each renewal.
Getting a Term Life Insurance
For afforability amongst life insurances policies term life insurance is a very good coverage option.A full physical examination that is generally required for most life insurances may not be needed here but you may still have to deal with some rather intrusive questions.The first step is to shop around and get term life insurance quotes from insurance agents or online insurance companies.
These are three of the more common Annuity Settlement Options and hopefully you now have a better understanding of how these annuities work.You will find plenty of structured settlement companies advertising their services online so it is very easy to shop around for the best deal.
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Annuity Settlement Options
Annuity settlement options explained
Annuity settlement options can be confusing and a little tricky. Many individuals have bought annuities of all kinds for the benefit of deferring taxes.Many people in retirement decide that it is time to cash in and contact structured settlement annuity companies to take an annuity buyout for their structured settlement.
Here are some things you should consider before you decide on your annuity settlement options.The most common annuity settlement options people go for is annually to take incremental payments over a period of time that you choose which may even be for your lifetime.Annuity payments come monthly,bi-annually or once yearly in exchange for surrendering your annuity to the annuity insurance company.Your annuity options usually include Lifetime Income,Period Certain and Period Certain Plus Life
Lifetime Income Option
Imagine you have $150,000 in an annuity and the insurance company figures that, due to your age and gender,they will pay you $1,600 a month for as long as you live. You collect $1,600 the first month, $1,600 the second month and another $1,600 the month after that THEN Oh oh you die unexpectedly in a freak accident.You basically made a wager with the insurance company that you would live long enough to get your $150,000 but you lost. $4,800 is all you got and due to your unfortunate demise they keep the remainder. This doesn't sound like a very good deal now does it?
Period Certain Option
This allows you to take your money out over a time-frame of 5,10,15 or 20 years. The insurance company guarantees to pay every penny of your money plus interest over that time. If as with the example above you are unfortunately killed your beneficiaries would get the remainder of the money in your annuity.So if you were to die unexpectedly at least your family would still get your money.
Period Certain Plus Life Option
With this annuity settlement option the insurance company guarantees to pay you a check each month for a certain period
of time, plus with the life option if you live beyond the agreed term of the annuity you will receive a monthly payment
for the rest of your life.
The options are not easy to choose and the different paths will suit different people. If a person was in a demographic expected to live to an old age may be better with a Lifetime Income whereas Somebody with health problems may be better off with a lump sum settlement or a 5 year Period Certain.Assess your health situation and that of your spouse along with your respective ages, what other sources of income you have and your tax obligations when choosing the right settlement option for you.
For a more flexible option you could elect to go for Systematic Withdrawals. with this option you would get a fixed percentage of the account value or a fixed monthly amount.You would be able to end this option at any time and withdraw your remaining balance if you so wished.While Systematic Withdrawals may sound more advantageous than annuitization there are two distinct differences to note.
1)With an annuitization as your annuity settlement option, you can lock in a guaranteed monthly income regardless of
the performance of your annuity
2) Annuitization increases the tax deferral period as only a part of each payment is taxed. The IRS considers considers
the other part of your payments a return of principal.
A last option
You may want to consider keeping the annuity letting it grow and not take payments at all. Some annuities don't allow this as an option and withdrawals must be made by a certain age.You could opt for a tax-free exchange to another annuity that may have more lenient withdrawal requirements, but beware of surrender charges on your policy.
Who would have thought receiving a check could be so darn confusing. It's really not as complicated as it sounds though and there are annuity brokers in every town who help people with their annuity settlement options.
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