The salary you draw today will disappear with retirement. Your pension, investments and savings could cushion the financial blow and maybe even support you for the rest of your life. But there is no way to predict the future. Inflation, increased medical care and various unexpected expenses can run through your savings at a rapid pace; then suddenly, the comfortable retirement to which you had been looking forward does not seem quite so comfortable after all.
Retired folk struggle to meet even regular living costs. Annuities provide a degree of financial security for such times. While life insurance is intended to protect financial dependents when the policyholder dies too soon, an annuity protects the policyholder in case he/she lives too long.
An annuity is essentially a series of payments, and it features a number of payout options. Which option you choose will ultimately depend on your financial needs - such as whether you need a regular stream of income for your post-retirement years or your children's college education. Thus, the payout could take the form of monthly payments or a lump sum as per your requirement. Let us now take a closer look at some popular types of annuity payouts.
1. Life Annuity - This kind of an annuity payout usually takes the form of monthly payments that continue over the lifetime of the annuitant. A life annuity payout often provides the best deal on your investment. This kind of a bare-bones policy has no additional clauses. The insurer promises you a guaranteed income over your lifetime. The insurer benefits if you die early because that is when the payments stop. If you live longer, you could end up receiving more than the amount you invested.
2. Joint Life Annuity - Such an annuity payout usually covers two or more people; most frequently, it is used to cover husband and wife. Such an annuity continues over the lifetime of all the annuitants. Thus, even if the primary annuitant dies early, it does not affect the annuities. The policy ends only when the final surviving annuitant passes away.
3. Life Annuity with Period Certain - This payout scheme combines the promise of lifetime benefits with a second promise - that of benefits being provided over a specified period. Thus, if the period certain is 10 years, the annuitant will receive benefits throughout his life if he outlives the period certain; if he dies within the period certain, his beneficiaries will receive benefits up to the conclusion of this 10-year period.
4. Life Annuity with Return of Purchase Price - In this type of payout, the annuitant receives annuities through his lifetime. On his demise, his beneficiaries receive the purchase price of the policy. The purchase price includes the sum assured, guaranteed benefits and accrued bonuses excluding the amount that has already been paid.
The amount of an annuity payout depends on several factors. Prime among these is the amount in your annuity contract: the larger the sum, the higher the payouts. Then there is also the question of whether there are any minimum required payments; such a clause ensures that you receive at least that amount as per schedule. Your life expectancy will also affect the amount as will the question of whether the payments are to continue after your death.
The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal
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