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Immediate income annuity rates and income payouts change frequently so current quotes are necessary to make a timely and informed decision. If you are ready, Eric or the specialized agent we recommend will gladly send you two or three of the highest paying immediate annuity quotes available for comparison and informational purposes.
Dick and Eric discuss when and for whom do immediate annuities work best…
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Immediate Annuity Features
Traditional immediate annuities offer a fixed periodic payment in exchange for an initial lump sum of cash known as a premium. This type of annuity typically will not allow future access to the initial cash paid into the premium funding the immediate annuity. In essence the cash asset or lump sum allocated to the immediate annuity is forfeited and is no longer accessible in its entirety it is instead converted to a guaranteed income stream.
Throughout the years, there have been some modifications to the original immediate annuity design. Many of these annuity features, which may or may not be available on all immediate annuities, or offered by all insurance companies, are discussed below:
Inflation protection: With this option, the immediate annuity income payments offer some form of a hedge against inflation. Here, the annuity owner may choose to have his or her income payments increase by a certain percentage each year, typically around 3 percent. Another choice may be to have the annuity income payments actually tied to an inflation rate by the use of a consumer price index. When this option is chosen the initial payout of the annuity starts lower.
Refund, liquidity, and withdrawal options: The traditional refund feature on immediate annuities has typically been either a cash refund or an installment refund that ensures after the annuity holder’s death that the beneficiary will receive an amount of money that represents the difference between the initial deposit amount and the amount of the income payments that the annuitant received during his or her life. This, however, reduces the amount of the systematic payout when comparing to life only with no beneficiary benefit.
Variable payments: With variable immediate annuities, the annuitant is allowed to direct the initial allocation into several various investment options, such as mutual funds aka as sub-accounts. In addition, depending upon the investment performance of these funds, the annuitant’s periodic annuity income payments could go up or down to the owner or annuitant.
There are several different ways to structure an immediate annuity with regard to the income payment options.
These options include:
Life only: A life-only immediate annuity can also be referred to as a straight life annuity. This means that the annuitant will receive annuity income payments for the rest of his or her life, regardless of how long that duration may be. The payments will cease and all of the unused initial premium will be to the insurance company’s benefit or detriment based upon the annuitant’s actual death and life expectancy underwriting calculations.
Certain period: This structure is not considered to be a life annuity. Rather, the annuity payments will only go on for a fixed period of time, such as for ten years. Even if the annuitant is still living at the end of the stated time period, the annuity payments will cease at that time. However, should the annuitant pass away within that time period, the beneficiary will continue to receive the payments until the period of time has expired.
Life with period certain (or certain and life): This type of immediate annuity payment structure is a combination of both the life and the certain period structures, meaning the annuity will pay income benefits to the annuitant for as long as he or she lives. However, if the annuitant passes away during a specified period of time, say ten years, then the beneficiary will continue to receive income payments from the annuity until the end of that ten-year time period.
Life with cash refund: This can be considered a money-back guarantee annuity. The income benefit payout is for life. However, if the annuitant passes away before the payments that total at least the amount of premium paid, then a lump sum payment is made to the annuitant’s beneficiary.
Life with installment refund: This, too, can be considered a money-back guarantee annuity. This immediate annuity payout option is similar to the life with cash refund option, except the annuitant’s beneficiary will continue to receive the monthly annuity income instead of a lump sum until the full amount of the premium has been paid out.
Joint and survivor: This annuity income payout option will guarantee that the income payments will continue for the lives of both annuitants. Along with this, period certain options can also be added. This particular payout option is typically used with married couples in order to provide income as long as either one of them is still alive. In some instances, the income benefit may drop when the first spouse passes away.
COLA SPIA: This annuity income payout structure has payments that increase or decrease by a floating percentage which fluctuates when tied to a consumer price index, each year. In this case, however, the initial income benefit will likely be lower than those that are non-COLA (cost of living adjustment) annuities.
Other Types of Immediate Annuities
There are some types of immediate annuities that may be set up for various specific reasons in order to meet certain needs of the holder. Some of these include:
Medicaid Immediate Annuity
In some circumstances, the purchase of an immediate annuity can help to qualify for Medicaid assistance sooner, while still allowing individuals to potentially pass on a larger amount of their estate to heirs. Essentially, the assets that are placed in a Medicaid immediate annuity are no longer considered to be in the estate, but rather are considered as being “spent down” prior to Medicaid eligibility acceptance.
Split Annuity Combo
Using a split annuity, can actually provide income for a certain period of years from an immediate annuity, typically between five and ten, and a multiple year guarantee on a deferred annuity is used to earn back the original amount of the principal that was allocated into the immediate annuity for the same number of years. This method is also used with the new income riders to reach a guaranteed income level instead of just focusing on cash accumulation.
Many retirees have CDs from which they withdraw interest each year. These individuals would like to leave the principal from that CD to their heirs. By using a split annuity, they are able to increase the amount of income they receive while also having a guarantee of principal at the end of the term.
This is a great concept, in that most of the income received from the immediate annuity is received tax-free based on the exclusion ratio, and the deferred annuities growth side is helped by the fact that it is tax-deferred with principal and interest guarantees.
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