Fixed Annuities and The Retired Senior | by Rick Law, Elder Law Attorney & Senior Advisor in Aurora, IL
Fixed Annuities are investments issued by insurance companies that are primarily geared toward retirement savings, promising the investor a fixed series of payments for a predetermined length of time. Not all fixed annuities are the same, so investors must compare one fixed annuity with another in a couple of key areas. First, there are two options for owners of fixed annuities when it comes to paying premiums:
- The installment premium method, in which the annuity owner pays premiums over an extended period of time (say, 10 years).
- The single premium method, whereby the owner pays one lump sum into the annuity account. These annuities typically provide the account holder with one of two distribution methods as to how benefits will be received: Immediate, where the annuity issuer begins payments right away or within a very short period of time, until both the initial investment and the interest are depleted; or deferred fixed annuities wait until the end of a specified time period prior to paying out funds. This time period may be a certain number of years, or it may be when the annuity owner reaches a certain age, such as 65 or 70.
- Life annuities pay income benefits to the annuitant as long as he or she is alive. With this option, benefits cease once the annuitant passes away.
- Term certain annuities offer payments that are received until a predetermined date or term. If the annuitant passes away during the predetermined time period, the insurance company keeps the remaining value of the annuity contract.
- Life with term certain is a third option. With this type of annuity, payments are received as long as the annuitant is alive. However, if they pass away during the predetermined time period, benefits continue to be paid to a beneficiary for the remaining term of the fixed annuity contract.