Finding the Best Single Premium Immediate Annuity Rates can be a difficult and confusing process.
- Immediate annuities and their modified versions hidden in GLWB riders are the only financial tools that guarantee an income that cannot be out lived. Technically, these are called life only annuities.
- However, a life only annuity is only one option for retirees in our modern age. Most carriers in the immediate annuity business normally offer a variety of retirement income options. These benefits take three general forms: life contingency; period or amount certain; and combinations of both certain and life contingency.
A life contingency benefit is one that continue until the death of the annuitant or the death of both annuitants if issued as a joint life annuity. Example: John pays XYZ Assurance $200,000 for a guarantee of $1,100 in monthly income as long as he lives. If John is still alive at age 155, he will still be collecting his $1,100. However, if John drops dead of a heart attack, one week before his first monthly check is due to arrive, the company keeps his $200,000.
In the event of an early death such as above, it is easy to understand why the heirs of John would have a few reservations about the purchase of the life only annuity. In order to provide a degree of principal protection to the beneficiaries of life only annuitants, carriers have added payment guarantees either for the duration the income benefits will be paid or the total amount of benefit to be paid.
For example, instead of accepting the $1,100 a month for his $200,000, John opted for a slightly smaller payout that was guaranteed for a minimum of ten years. If John dies next week, his benefit will continue to be paid to his designated heirs for ten years. If John lives to be 155, he will still be receiving income from the contract. This option is called a ten year certain and life
John could just as easily have selected an installment refund option with his lifetime payout. Under this option John receives a stated income for life, but total payments are guaranteed to be at least the $200,000 he paid in. If John dies before $200,000 has been paid out, his beneficiaries receive the balance in the same equal installments that John received during his life. Installment refunds are often an equitable alternative to the financial risk of a life only annuity. In an installment refund, the insured and his family are essentially trading the interest that could have been earned on the $200,000 for a lifetime income guarantee.
Two factors affect the amount of an annuity payout for any given lump sum cost: current interest rates and mortality (longevity). Insurance companies use annuity premiums to purchase commercial bonds and the interest on said bonds is applied to policy benefits. Period certain and amount certain options are strictly interest rate based. There is no mortality component, because the same benefit is paid whether the annuitant is alive or dead. Hence, these benefit amounts are based entirely on current interest rates. Therefore, if interest rates are higher than average, you will be able to purchase higher than normal period certain benefits. Alternatively, when bond rates are low, annuity payouts will be reduced.
It should be stressed for period certain or amount certain benefits, the level of current commercial interest rates is the only consideration. Insurance companies do not like interest rate risk. Therefore, they purchase bonds with due dates coincident with the benefit payment dates and lock in the whole transaction the day the policy is issued. Because they have discounted both their cash flow in and cash flow out, they have no future risk on the transaction.
Immediate annuities that offer a lifetime income require the insurance carrier to price in both their interest rate cost and their mortality risk. Most carriers will ladder their annuity income based on an assumed average life expectancy and add a surcharge for the chance that you might be long lived. This approach lets them lock in their interest rate projections based on average life expectancy, in effect minimizing their interest rate risk and leaving mortality risk their only concern.
The potential loss of large amounts of principal is a primary reason that retirees are reluctant to purchase immediate annuities. However, by adding period certain or amount certain guarantees to their lifetime income choices, consumers can often find a financially viable comprise that protects their family capital as well as guarantees their lifetime income.
Finding the highest immediate annuity rates is relatively easy. Simply request an immediate annuity quote from a number of carriers and select the highest benefit for the lowest price. However, since some annuity income options have period or amount certain guarantees and others provide no guarantee of benefits other than survival, it is wise to first compare benefit types. First determining which type of retirement income benefit you want, makes a broader market search to find your best buy much less complicated.
Please work with an expert at matching your individual financial and retirement planning needs to the most appropriate annuity.
Contact us today to find a licensed annuity professional in your area!
Contact us NOW!
Compliance # CSP_1055 20160608