Annuitization Options

Many people find annuity settlement options a bit confusing. In reality, many people have purchased annuities for its specific tax-deferral quality. This form of investment seems very popular with retirees as well. For them, the time has come to receive payout from the accumulation of interest, coming from the money which they have invested. Before making an important permanent change in investment, one must consider the following options.

Annuitization is the most widely-held form of settlement option. This is when an individual decides to receive payments for a period of time. It is even possible to select an option that allows him to receive a check for the remainder of his life. The condition would be for him to surrender his annuity or insurance plan to an annuity insurance company. The most common choices are lifetime income, period certain, and period certain plus life. A person must study how annuitization works and see if it is the best for him.

Let’s start with Lifetime Income. Given a hypothetical situation where one has $150,000 in annuities. Referring to his age and gender, the insurance provider decides to give him $1,000 on a monthly basis for the rest of his life. On the first, second, third and fourth month he was able to receive this amount regularly. However, he met an accident on the fifth month and was dead on arrival when he reached the hospital. Obviously, the insurance company has the upper hand in this situation because he was only able to receive a portion of the money that he handed over to them. Four thousand dollars is very small compared to the $150,000 that will now be owned by the corporation. It is a waiting game. The party that expires first loses. The tendency is for humans to leave this earth first before major financial institutions do. Many people do not consider this a good deal at all.

Period Certain is another option for annuitization. As the term suggests, the individual will be allowed to pull out his funds after several years. The denominations are usually 5, 10, 15, and 20 year intervals. What happens is that for the time frame selected, the insurance company is obliged to return all the money including the interest growth. If an owner dies before the end of the time period, beneficiaries will still be able to get the remaining amount from the annuity. This implies that the family will be able to use the remaining balance.

Last but not the least is the option for Period Certain Plus Life. In here, the insurance policy agrees to send a check to an individual monthly for certain periods of time. In addition, if he outlives the time frame, the insurance company still guarantees a check paid to him no matter what age he reaches.

People with terminal diseases might consider taking an annuity for Period Certain that is only good for 5 years. Others who feel confident about reaching the ripe old age of 95 would certainly need some form of Lifetime Income. In general, factors like a person and his spouse’s age, health, income and tax bracket will help one make the right decision.