What Are Lifetime Annuities?

Imagine an annuity that promises to pay you throughout your life. Well, if you opt for a life annuity, then your imagination can very well turn into a reality. We are outliving our predecessors. Modern health care system, the advancements made in health science and availability of cure for almost all the known diseases has meant that life expectancy of the average American is registering an increase.

However, we all know that our earning capacity is limited. We cannot work for 12-14 hours a day, once we enter our sixties and seventies. And if we do not work, we will not receive any income. So, when it comes to income for a lifetime, we have to choose some safe options that will give us decent returns as well as safeguard our investments. And that means doing away with stock markets as they are too risky. Similarly, money market funds and CDs do not get thumbs up, as the interest rates offered by them do not look too attractive.

Under such circumstance, we can depend upon life annuity. We all are aware that annuity is a contract between an insurance company and an annuitant, wherein the annuitant pays premium/premiums and the insurance company promises a regular stream of income. In case of life annuity, the insurance company is obliged to make payment to the annuitant for his entire lifetime.

Features of life annuity:

Safeguard your future: Life annuity lets you safeguard your future. It is designed in a way that you do not face a cash crunch, when you retire from active working life.
Make contributions while you are earning: The contributions or the payment of premium, in case, of a life annuity can be made when you are able, working and earning a regular income.
Charter out your retirement plan: Life annuity helps one to chart out the flow of income when one retires. Most people choose to receive payments from life annuities after their retirement. In case, you opt for a fixed life annuity, you are assured a fixed sum of money at definite intervals for your entire life.
Penalty: Investors purchasing life annuity have to remember that penalties are imposed on those who withdraw the money earlier than the stipulated time.
Twofold benefits: Life annuity provides the investor with two benefits:

Tax benefits: Interest accumulated on life annuities is not taxable during the accumulation phase. This means that you are liable to pay tax once the insurance company starts making the payment. Since the gains are not taxed at the accumulation stage, your investment multiplies by a larger amount. And by the time your life annuity starts paying, you will have entered into a lower tax bracket
Long-term horizon: Life annuities seek to invest your funds over a long timeframe. This allows one to average out the ups and downs witnessed in financial markets. It also allows your investment to grow.

Thus, life annuity is a perfect option for those who wish to receive secured income for lifetime.

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