Life Annuity
Candlefocus EditorWhen an individual purchases a life annuity, they make either a lump sum payment to purchase the product or pay a series of premiums on the annuity until an initial principal balance is reached. This principal then serves as the base figure that the annuity will pay out, typically in monthly increments. The payments will continue until either the annuitant dies or the term of the annuity comes to an end, whichever happens first.
The amount and frequency of each payment in a life annuity is unique to each individual. Generally, the older the annuitant is at the time of purchase, the higher the monthly payout. Furthermore, payments are dependant on the length of the annuity term; monthly payments are generally lower but the amount paid out over the entire annuity period will actually be higher than an annuity with a limited number of years of payments.
The advantage of life annuities is that they provide a steady stream of income for an individual during retirement. Most life annuities offer some form of death benefit, which may include the return of the initial payment made for the annuity or provide a payment to the individual's beneficiaries at the time of death.
Overall, life annuities are often chosen by individuals who are looking for a secure, predictable way to supplement their retirement savings. With a life annuity, retirees can be sure that they'll have a steady income payment even in their later years. Moreover, life annuities offer the potential for some degree of inflation protection, allowing annuitants to receive an income that greater than the inflation rate.