Annuities

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If you’re planning for retirement, annuities may complement your existing 401(k) or investment strategy.

Annuities combine insurance and savings into one (really useful) financial product. They can guarantee income in retirement for as long as you live.

SPIA

Single Premium Immediate Annuities

A Single Premium Immediate Annuity (SPIA), also known as an income annuity, is an insurance product that provides a guaranteed income stream for life in exchange for a single lump-sum payment. The payments are designed to help cover essential living expenses in retirement and can continue for the rest of your spouse’s life if you choose a joint life option.

Unlike a deferred annuity, which involves paying into an annuity over time, a SPIA converts your assets into immediate payments. The amount you receive each month depends on your age and current interest rates, and income payments generally don’t fluctuate based on the market.

DIA

Deferred Income Annuities

A deferred income annuity (DIA) is a type of annuity contract that converts savings into a guaranteed income stream during retirement. DIAs are sometimes called longevity insurance and can be purchased as an alternative to a pension.

When buying a DIA, you pay a premium to an insurance or annuity company, either in a lump sum or over time. You then choose a future date to start receiving income payments, usually between 13 months and 40 years after the initial purchase. The longer you wait to start receiving income, the higher your monthly payments will be. This is because your income has more time to grow, and you’ll also have a shorter life expectancy. Other factors that affect the price of a DIA include your sex and the interest rates used by the insurance company.

QLAC

Qualified Longevity Annuity Contract

A Qualified Longevity Annuity Contract (QLAC) is a type of deferred income annuity (DIA) that provides a guaranteed income stream in retirement. QLACs are designed to help people avoid outliving their retirement savings. They can also help reduce the amount of retirement account withdrawals required by Congress, which can help defer some income taxes. The only difference between QLACs and DIAs is that they can be funded from a qualified retirement account.

MYGA

Multi-Year Guarantee Annuities

A Multi-Year Guaranteed Annuity (MYGA) is a type of fixed annuity that offers a guaranteed interest rate for a set period of time, usually between 3–10 years. MYGAs are also known as Fixed Rate or CD-type Annuities because they are similar to bank CDs. They have no annual fees and are fully principal protected

FIA

Fixed Index Annuities

FIA stands for Fixed Indexed Annuity, which is a long-term investment contract between an individual and a life insurance company. FIAs are designed to help people accumulate money and provide income for retirement. They offer several benefits, including:

Tax-deferred growth: Interest earned in an FIA grows tax-deferred.
Protection from market losses: Because FIAs don't involve buying stocks or shares of an index, the money in the account isn't at risk from market losses.
Locked-in interest credits: Interest credits to the contract value are "locked-in" and can't be taken away if the index performs poorly .

FIAs can also offer optional guaranteed lifetime withdrawal benefits (GLWBs) for an additional cost. These benefits provide a guaranteed income that increases each year until income is deferred, which can help cover living expenses in retirement. However, withdrawals are subject to income tax, and withdrawals before age 59½ may also be subject to a 10% early withdrawal federal tax penalty.

Annuity Riders

An annuity rider added to an annuity contract adds another feature not available in the standard form of the contract. This can help customize the contract to meet the needs of the contract holder. Generally, annuity riders fall into one of two main categories: living benefit or death benefit riders.

Living Benefit Riders

Living benefit riders provide the annuity contract owner with some type of benefit during their lifetime, as long as the contract remains in force. This category includes several types of annuity income riders:

Guaranteed minimum income benefit riders set a minimum payout on the annuity payments during the contract holder’s lifetime. For annuity products like a variable annuity or an indexed annuity where the contract amount can vary with the performance of the money invested in the contract, this type of rider sets a floor on the amount of the annuity payments. Typically there is a minimum holding period of 7 to 10 years before the provisions of the rider can be exercised.
Guaranteed minimum accumulation benefit riders guarantee the minimum accumulation value of the contract. Variable annuities and others may ordinarily see the value of the contract and ultimately the amount of the annuity benefit available affected by fluctuations in the markets. This type of rider provides protection against these market fluctuations.
Guaranteed lifetime withdrawal benefit riders can be added to many variable annuities to guarantee a minimum annual income from the contract for the rest of the contract owner’s lifetime, regardless of the investment performance of the money inside of the annuity. Payments, expressed as a percentage of the greater of the current contract value or the original amount of premiums paid into the contract, can be for the rest of the contract holder’s life or a specified number of years.
Guaranteed minimum withdrawal benefit riders guarantee a stream of annual withdrawals from the contract from the return of the premiums that the contract owner paid in, regardless of how the investments inside the contract perform. These riders ensure that the contract holder will be able to at least get their investment in the contract back. In some cases, this type of rider might include a clause allowing the contract holder to withdraw a portion of any upside from the premiums paid into the contract as well.
Cost of living riders increase the amount of the contract owner’s annuity payments to compensate for the effects of inflation. The amount of the increase is based on the actual rate of inflation or some other trigger specified in the rider.
Long-term care riders increase monthly annuity payments to a certain level to meet the cost of long-term care if needed. The LTC rider increases the monthly annuity payment to help offset the high cost of long-term care services if needed.
Disability income riders will provide a payment for a limited period of time, such as a year, if the contract holder becomes disabled and their condition results in a loss of income.
Impaired risk riders increase annuity payments if the contract owner develops a health condition that shortens their life expectancy. The contract owner must provide proof of their condition to the insurer to trigger these higher payments.
Terminal illness riders allow the contract owner to waive any applicable surrender charges on the contract should they be diagnosed with a terminal illness resulting in a drastically shortened life expectancy. This allows for the use of the money in the contract to meet any added expenses without incurring normal surrender charges that otherwise would apply.

Death Benefit Riders

Most annuities include some level of death benefit. The standard death benefits will vary by the type of annuity, the insurance company and whether or not the contract has been annuitized. In some cases, adding a death benefit rider can help the contract owner ensure that their desired beneficiaries receive a death benefit from the contract, especially if they die earlier than expected.

Guaranteed minimum death benefit riders

generally cover the situation where the contract holder dies during the annuity’s accumulation period. This type of rider may offer named beneficiaries a minimum guaranteed death benefit or may allow for a new annuitant to be named. Generally, the guaranteed minimum death benefit will equal the contract value at the owner’s death, premium payments made less any withdrawals from the contract or the contract value at a previous specified date such as a prior contract anniversary date.

Return of premium riders

Ensures that any remaining premium amounts left in the annuity at the time of the contract owner’s death will be returned to the beneficiaries. This ensures that the full premium value remains in the annuity, so that the full value will be derived by either the owner, the beneficiaries or a combination of the two.

Spousal protection riders

Provide a surviving spouse with an added level of financial security from the annuity. Depending upon the terms of the rider, the spouse beneficiary will either provide a lump-sum death benefit or transfer ownership of the annuity to the surviving spouse.

Guaranteed minimum death benefit riders generally cover the situation where the contract holder dies during the annuity’s accumulation period. This type of rider may offer named beneficiaries a minimum guaranteed death benefit or may allow for a new annuitant to be named. Generally, the guaranteed minimum death benefit will equal the contract value at the owner’s death, premium payments made less any withdrawals from the contract or the contract value at a previous specified date such as a prior contract anniversary date.
Return of premium riders ensures that any remaining premium amounts left in the annuity at the time of the contract owner’s death will be returned to the beneficiaries. This ensures that the full premium value remains in the annuity, so that the full value will be derived by either the owner, the beneficiaries or a combination of the two.
Spousal protection riders provide a surviving spouse with an added level of financial security from the annuity. Depending upon the terms of the rider, the spouse beneficiary will either provide a lump-sum death benefit or transfer ownership of the annuity to the surviving spouse.

Annuity Rider Costs vs. Benefits

Annuity riders can help tailor the living or death benefits from an annuity to your client’s unique situation. It’s important to note, however, that annuity riders are not free. Costs will vary based on the insurer, the type of rider and the type of contract the rider is being added to among other factors.

Disclaimer

Annuity products are offered through independent licensed insurance agents. Product availability, features and rates may vary by state. This information does not represent a recommendation or advice specific to your situation. The annuity information provided comes from sources deemed to be reliable but cannot be guaranteed. Check with the annuity company for current product information, and review all annuity rates, terms, conditions and costs before making a purchasing decision. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing company.