While an annuity is an insurance policy, they also provide an option for ongoing income. Annuity income riders provide the insured with a payout based on several factors including the base amount of their investment, how frequently the income is paid and how long a period of time the income is to be paid out. When considering an investment in an annuity, it is critical to understand how annuity income options work and what benefits they offer.
Basic annuity income options
There are three distinct options that may be explored when deciding how to take advantage of the income from an annuity. These three methods are:
Fixed income option
When the annuitant accepts a fixed amount of money on a monthly, quarterly or annual basis over the full term of the annuity. This annuity income option allows the recipient to know exactly how much money they will get for each payment. There are advantages to this method for retirees who are attempting to live on a strict budget.
Variable income option
- Using this annuity income option, the amount of each payment varies depending on the contract and the performance of the underlying insurance contract. The interest rate of the policy will also have an impact on the payments. These investments are typically suited to those investors who have other sources of monthly income sufficient to maintain their lifestyle.
Combination income option
- This annuity income option provides the annuitant with a specific amount each month in addition to a variable amount that will be dependent largely on the performance of the annuity. This option allows the insured to minimize their risk while maximizing their potential rewards.
Lifetime annuity income options
When annuitants are seeking annuity income options that last a lifetime, they actually have three different options. With an annuity income rider, any of the three following scenarios is possible:
- The easiest explanation for this annuity income option is that the insurance company pays a specific amount to the annuitant up to the date of their death. Once the annuitant passes away, no further payments are made.
Period certain payments
- This type of annuity income option is more complicated, whereas the annuitant collects benefits until they die and their beneficiary collects payments for a specific period of time thereafter. This particular type of annuity income rider specifies the exact term. Terms may be as short as five years or as long as twenty years depending on the rider terms.
Joint and survivor
- The most complicated annuity income rider is joint and survivor. This type of a rider provides co-annuitants (typically spouses) to collect a specific amount while both are alive. Once one of the annuitants dies, the payments may be reduced by will continue being to the remaining annuitant and/or the decedent’s beneficiary.
Annuity investments are designed to help protect an investor from outliving their financial assets. In effect, they are insurance against living too long. Life insurance policies protect a policy owner’s family from the possibility of the insured passing away too early. When planning for retirement, it is nearly impossible to determine how long a person will live. Annuity income riders can help provide additional income regardless of how long the insured lives.
Advanced Capital Management, Inc. can show you how to get better returns on your retirement dollars and provide you with the income you need. Why not find out more about how a lifetime income annuity rider works? It costs you nothing to find out if a Fixed Index Annuity or Life Insurance is the right option for you. Just click on the orange “Get Annuity Quote” button to the right and see how you can generate more income, safely, for your retirement.