Lifetime Annuities

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Lifetime annuities pay the annuitant as long as the annuitant is alive. An individual can purchase an annuity contract with a lump sum of money either over a period of time or all at once. The annuity will then pay the money back to the individual plus interest over a period of time. In the case of a lifetime annuity, the annuity continues to give an income to the annuity holder/annuitant until the individual dies.

How Lifetime Annuities Work

Lifetime annuities are usually purchased when an individual expects to outlive any other income. Since the annuity is purchased with a large sum which is paid back over time, the annuitant usually expects to receive the entire sum paid back over a series of years. If, however, the lifetime annuity owner lives beyond such a time when the entire sum is paid back, the annuity will continue to pay the same amount until the individual’s death. In this case the annuitant actually receives more money back than was paid into the annuity.

There are variations on the lifetime annuities. For example, most lifetime annuities will not pay anything to beneficiaries should the annuitant die before the total sum of the lifetime annuity has been repaid. There are, however, exceptions to this when the annuitant purchases a lifetime annuity with a period-certain clauses which allow a refund to be paid to beneficiaries should the annuitant die before a certain period has passed. Some period-certain lifetime annuity provisions are:

• Single Life Only, Without Refund – level payments are made to the annuitant until the annuitant’s death.
• Single Life with 5-years Certain – level payments are made throughout the annuitant’s life until the annuitant’s death. If, however, the annuitant should die before the end of five years, then annuity payments continue to beneficiaries until the end of five years.
• Single Life with 10-years Certain – level payments are made throughout the annuitant’s life until the annuitant’s death. If, however, the annuitant should die before the end of ten years, then annuity payments continue to beneficiaries until the end of ten years.
• Single Life with 15-years Certain - level payments are made throughout the annuitant’s life until the annuitant’s death. If, however, the annuitant should die before the end of fifteen years, then annuity payments continue to beneficiaries until the end of fifteen years.
• Single Life with 20-years Certain - level payments are made throughout the annuitant’s life until the annuitant’s death. If, however, the annuitant should die before the end of twenty years, then annuity payments continue to beneficiaries until the end of twenty years.
• Single Life with 25-years Certain - level payments are made throughout the annuitant’s life until the annuitant’s death. If, however, the annuitant should die before the end of twenty-five years, then annuity payments continue to beneficiaries until the end of twenty-five years.
• Single Life with Installment Refund – level payments are made to the annuitant, but, should the annuitant die before the amount paid equals the amount of annuity purchased, payments continue to the beneficiary until the amount paid out is equal to the amount of annuity purchased by the annuitant. Beneficiaries will not receive any interest payments.
• Single Life with Cash Refund – level payments are made to the annuitant, but, should the annuitant die before the amount paid equals the amount of annuity purchased, the remaining difference is paid to beneficiaries in one lump sum.

Lifetime annuities that have riders or provisions that provide payments to beneficiaries typically pay out less to the annuitant over the given period of time during which an annuitant’s death would provide payment to the beneficiaries. For example, during a Single Life with 5-years Certain Lifetime Annuity Plan, payments during the first five years of the lifetime annuity would be 5% to 15% less than those after the 5-year period.

Lifetime annuities can also come with riders that would provide continued payment to others upon death of the annuitant. These riders typically provide annuity payments to a surviving spouse of the annuitant and are called Joint & Survivor annuities. The following provisions and riders may be attached or added to a lifetime annuity:

• Joint & Survivor – level payments are made to both as long as either annuitant is alive.
• Joint & Survivor reducing on First or Either death – level payments are made to the annuitant and joint annuitant until one or the other dies. After the death of either annuitant, the payments will continue until the death of the second annuitant but will be reduced by up to 75%.
• Period Certain provisions to Joint & Survivor lifetime annuity plans provide both annuitants with level payments over the course of either lifetime. However, should either annuitant die before the certain period has passed, the remaining annuitant continues to receive the full level payment from the annuity until after the certain period has ended. If both die before the certain period is over than beneficiaries are paid until the end of the certain period.
• Joint & Survivor reducing only on death of Primary Annuitant – level payments are made to both the annuitant and joint annuitant. If the primary annuitant dies before the joint annuitant, then reduced annuity payments up to 75% are paid until the joint annuitant’s death. However, if the joint annuitant dies first, than the annuity payments are not reduced for the primary annuitant.
• Cash refunds and Installment refunds can also be added to Joint & Survivor lifetime annuity plans. Variations can be made between the death of one or both annuitants and the payments to survivors or beneficiaries based on the amount left in the annuity. Depending on the type of refund provision, sums may be paid out depending on the death or deaths of either or both annuitants.

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