Annuity Options

One of the major benefits of an annuity is the flexibility of distribution choices available to the annuitant, including payments for the rest of your life, no matter how long that may be. This can be a very comforting feature, since outliving one's retirement assets might be considered one of the worst possible things that could happen in your latter years.

Annuity payout options are generally variations of payments over your lifetime or payments over a certain time period. Some of the choices (along with their advantages and disadvantages) that you might have are these:

Life Income or Straight Life - Annuity payments are made as long as the annuity owner lives, ceasing when he or she dies. With this option, you're assured that you'll never outlive your annuity payments. Unfortunately, if you should die shortly after payouts begin, you'd receive much less than you paid into the policy (although it probably wouldn't bother you too much at that point).

Temporary Annuity Certain - The annuity is payable for a fixed dollar amount or a fixed time period regardless of whether the owner lives or dies. If he or she dies, payments are made to a previously specified beneficiary. The good news with this payout option is that you (or your beneficiary) are guaranteed to receive either a certain total amount of money or a particular number of payments. The not-so-good news: you could possibly outlive your payments.

Life Income, Period Certain - The annuity is payable over the owner's life, with a minimum guaranteed payout period. For example, a life income, 10 years certain selection mandates that if the annuitant dies after, say, three years, a beneficiary would continue to receive payments for the remainder of the ten-year time period. If the annuitant lives past ten years, payments will continue throughout his or her life, and cease upon death. So, you (or your beneficiary) are certain to receive a set number of payments and you won't outlive your annuity payments. Unfortunately, because of the insurance company's guarantee to pay for at least the minimum specified period of time, the annuity's monthly payout to you will be lower than it would be with a life income option.

Life Income with Refund - The annuity will pay over the owner's lifetime. However, if the owner should die before receiving an amount equal to the payments made into the annuity, a beneficiary will receive the balance. With this option, not only do you have a guarantee of not outliving your payments, but you (or your beneficiary) will also receive at least a minimum specified dollar amount in payouts. But again, just as with the life income, period certain option above, your monthly payment will likely be lower than if you'd chosen the life income option.

Life Income Joint and Survivor - The annuity is payable to two or more people while either one is living. Upon the death of the first individual, payouts will continue to the survivor, but possibly at a reduced rate. Using this option, your spouse would continue to receive annuity payments after your death, and vice versa. The disadvantage here is that because the insurance company faces the likely possibility of having to make continued payouts to a survivor, monthly payments will likely be lower than they would be with options based on just one life.

Joint Life - The annuity is payable to two or more annuitants only while both are living. Payments cease upon the death of either annuitant. This option carries the advantage that monthly payouts are higher than they would be with an annuity based on just one life since there's an additional chance of death (as far as the insurance company is concerned), which would stop all annuity payments completely. If you and your spouse both have significant life insurance policies and wouldn't need the annuity after either's death, the joint life option can increase current income. However, an early death could mean a very small total annuity payout as compared to the amount of premiums paid in.