Are life income annuities considered a good settlement option?


The answer will depend on one's personal financial situation and needs but practice shows that very few annuity holders select life income annuities (no refund)as a settlement option.

Generally, life annuities providing no refund have the highest income payment rates, but there is a risk of losing the unpaid principal in the event of early premature death.

How Life Income Annuities Work

Unlike temporary annuities, life income annuities are a settlement option characterized by payout that is guaranteed for life. There are three basic subdivisions of the life income annuity category:

  • Life annuities (no refund), also called straight life annuity, pays a life income for as long as the annuitant is alive. When the annuitant dies, payments cease. This settlement option pays the highest amount of monthly income due to its lack of refund options, and is therefore suitable for people who are either single and need a maximum income, or have dependents that they have already provided for.

    The biggest drawback of life annuities with no refund is that, no matter whether the annuitant dies in two months or 60 years after the inception of the annuity, the payments cease upon the annuitant's death, without there being any minimum benefits guaranteed. In the event of the annuitant's early death, the insurance company keeps the sum of the unpaid benefits.

  • Refund life annuities resemble straight life annuities in that annuitants receive payments for as long as they are alive. The difference between the two is that, under the refund option the beneficiary will receive a guaranteed amount at least equal to the price the annuity contract has been purchased for.
  • Life annuities with period certain pays a life income to the annuitant for a guaranteed number of years, such as 5, 10, 15 or 20. If the annuitant dies before receiving the payments, the remainder of the guaranteed installments is transferred to the beneficiary.
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