subject: Clear Explanation Of Life Annuity [print this page] A life annuity is an insurance plan for retirement. When you purchase an annuity, you make regular installment payments through out your life, and once you retire you begin to receive monthly payments based on an amount agreed upon at the beginning of your annuity contract. A term to describe the owner of a life annuity is annuitant. You as the annuitant, will secure a retirement fund that is of immense benefit to those who are single, or do not want to leave their cash benefits to a beneficiary. It is exceedingly rare in these types of insurance contracts for the annuitant to receive a lump sum payment upon retirement. Life annuities are more of a plan designed to provide a steady income each month after retiring. For many, a life annuity is a way to guarantee passive income for the rest of their life.
How It Works
You would contact an insurance company, and make a single life annuity contract, which requires a substantial initial payment. You may continue to add to this amount over the years of the contract. You will stipulate in the contract whether you want your benefit payments to begin now, or upon a date set by you in the future. You will also determine the time limit for the dispersal to continue after you begin to receive the. Once the Single life annuity plan ends, at your death or end of the contract, all the funds remaining in the holding account revert to the insurance company, and all payments to you will stop.
Payment Options
While the single system works as stated above, there are other payment options you can consider. You can name beneficiaries to receive the amount left in the life annuity after your death. You can stipulate in your contract that if you die before the time frame specified for ending the contract, your annuity benefits would be paid monthly to a beneficiary you name, or your estate. This is known as an assured term single life annuity.
In order to avoid the penalty tax, all funds should be slated for dispersal after the age of 59 and a half for the annuitant; because interest rates do not fall into play until after the money begins to be withdrawn.
Single Types
There are two basic life annuity plans; the immediate and the deferred. With the deferred single, there are two primary stages; the accumulation stage is the crediting of funds into account to draw interest over the life of the plan. The second stage is the payout stage; you as the annuitant begin to receive the installment benefits along with accrued interest. You will be taxed at the current tax rate you now hold.
If you have chosen an immediate payout plan as your method of receiving the installments, then the balance in the account remains at a tax-deferred status, you will begin to pay taxes on the immediate income installments. It is crucial that you understand the differences in single annuity plans, and you should only deal with a reputable insurance company for these matters of financial planning for your future.
