Guaranteed Income for Life
Written by April Hill on August 26, 2011 – 11:18 amA life annuity is a financial product which provides a pension of fixed, monthly payments for the remainder of the recipient’s life.
A life annuity can be purchased with a single payment or by paying premiums over a course of time .
Life annuities are created and sold by life insurance companies, but you might well think of them as the opposite of life insurance. Instead of providing financial protection against dying too young, they guarantee a paycheck for life—financial protection against living too long.
An annuity’s existence is divided into two segments: the accumulation phase and the income phase.
During the accumulation phase, you build equity in your annuity by paying premiums to the company that solid it; your annuity also accumulates interest. Premiums must be at least the amount stipulated at the time of sale and must be paid with the frequency stipulated at the time of sale.
Your income phase begins whenever you decide to stop paying premiums. From that point on, you have a guaranteed income for life.
The size of your annuity’s income payment will be the same each month. It depends on how much you paid into the annuity before the income phase, how much interest it accrued, and your life expectancy at the start of the annuity’s income phase.
If you trigger your guaranteed income for life while you’re only 30, you have a lot of life ahead of you, so your annuity contract won’t provide you with a very large monthly paycheck. If you wait until you have less life ahead of you , then you’ll have a larger paycheck.
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