Annuities

An annuity is not a death benefit, an annuity is a periodic payment of income made to the annuitant (a natural person who receives benefits under an annuity contract) either during the course of his or her expected lifetime or for a specified period of time (the annuitant chooses whether he or she wants lifetime or a specified period of years payments). 

An owner of an annuity can be either a person or entity (I.E., trust, corporation, or llc), but the annuitant must be a natural person (human). 

Although the annuity offers no traditional death benefit, it is still considered to be a life insurance classification contract, and its sale or solicitation requires a state life insurance license. 

● Life insurance (death benefit plans) begins payment upon the insured’s death. 

● Annuities usually stop payment upon the death of the annuitant (recipient). 

Until the annuitant receives payment, an amount of money is or has been invested. This capital (or principal) sum will earn an interest rate on a tax-deferred basis. In return for the invested principal amount, the annuitant can receive benefit payment (monthly, quarterly, etc.) for the remainder of his or her lifetime, or for a selected period of years (I.E., 5, 10 or 20 years). The annuity is the only financial product that will guarantee an income no matter how long an annuitant lives. 

Annuities are commonly created to save for retirement, college education for children/grandchildren, or even to pay legal awards in structured settlements. An owner contributes money into an annuity, commonly known as the pay-in period (also called the accumulation period), and then eventually the income pay-out begins upon annuitization (which is determined by the annuitant at the time he or she wishes to begin receiving either a lump sum of the entire cash value or a regular periodic income for life or for a specified period of years). 1) single and flexible premium – an annuity owner can make purchase payments (contributions) during the annuity’s pay-in period with either single or flexible premiums. 

A single premium annuity is one lump-sum payment made to collect interest until the later annuitization. This single lump-sum payment can range from several thousand to millions of dollars. Flexible premiums, on the other hand, are more a pay as you go plan by which the annuity owner can decide how often and how much to pay into the annuity and when to stop if a certain desired principal is attained.