Annuity Settlement Options

• Life Annuity - No refund
• Refund Life Annuity
• Life Annuity Certain

The first annuity settlement option is a life annuity is a payout term referring to a payout which is guaranteed for life. This is also known as a straight life annuity - the annuity pays out a benefit to the payee for as long as they are alive - and when their life ends, the annuity ends. It is not contingent on the receiver to live a certain amount of years, if you die on the way out of the court room you receive nothing, and if you live to 100 years old you receive it till then. There is no expectation of guarantee because there is no way to guarantee the life of an individual.

The obvious down side to the one receiving this type of annuity is that if they do not live very long they may not end up receiving full reconciliation from the company who owes them money. The up-side is that it pays the most to the annuitant in monthly benefits because the insurance company is betting you will die before they lose a lot of money.

The payment structure here is the same as the life annuity in that as long as the annuitant is living they receive funds from the insurance company, once they pass, the insurance company retains any future payments owed.

This type of payment plan was structured in response to the no refund life structure as clients felt the insurance company was short changing them on benefits by not at least guaranteeing some sort of minimum payout.  Thus with a refund life annuity you receive payments that may even exceed the original contract price depending on how long you live, and if you die before the minimum is met, you can name beneficiaries to receive the remainder of the benefits.

This payment structure guarantees the life annuity for a certain period.  Typically the payment is structured over 10, 15, or 20 years with 10 being the most common.  If the annuitant outlives the policy the payments continue, but if the annuitant dies beforehand the payments can be reassigned to beneficiaries until the annuity is paid out for the original 'Certain' period.

The reason 10 years is the most common structure is because this is what is believed to be the average life expectancy of someone who retires at age 65.  In other words, payments are started at age 65 and continue until age 75.  If you die at age 70 your beneficiary will receive those payments for another 5 years.