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Types of Annuity
Settlement Options
What is Annuity?
Before we discuss your Annuity Settlement Options Let's go over
what an annuity actually is. Put simply an annuity is income or series
of payments that derive from an investment previously made. Most
commonly an annuity is an insurance product such as a life insurance
policy with a fixed rate of premium that the policy holder makes
payments on to the company. The annuity therefore has two phases being
the accumulation phase and the phase of repayment. In the accumulation
phase of your annuity settlement options you as the policy holder make
regular payments to the structured settlement company over a
predetermined number of years and the insurance company invests this
money.
In the second phase of the annuity namely
the repayment phase, the invested money is paid to the policy holder
along with the accrued interest which has built up over the years.
This payment may be in the form of a lump sum or in a structured
settlement paid incrementally over a period of time and are known as
settlements. These insurance investment products vary according to
terms and conditions of the policy.
So What are Your Annuity Settlement Options?
The following are annuity options that are available and being
used by many people today.
Refund annuity
This annuity settlement option requires
payments to the policy holder throughout their life, but guarantees
the return of the original amount paid to the annuity. This means if
you were to die before the original lump sum has been paid the
remainder would be paid to your beneficiaries. The premium on a refund
annuity plan is commonly higher than on other annuity settlement
plans.
Situations where a refund annuity might be suitable are:
• If You are considering retirement from work.
• You want an insurance settlement option that offers regular payments
for as long as you live.
• • You want to reduce your income taxes.
• Your social security benefits are not enough to sustain your
lifestyle in retirement.
• You want to conserve your principal amount.
How a
Refund Annuity Works
In a refund annuity plan, the insurance
company makes payments to you for your whole life. This insurance
settlement option also assures a return of the initial investment if
the annuitant should die before all of the periodic installment
payments have been made. Opting for this this annuity offers favorable
refund stipulations and death advantages. There are two kinds of
annuities that are most commonly being used today.
There is the installment refund annuity
where payments are made for the lifetime of the annuitant but should
an individual die before the payout for the minimum number of years
specified in the policy then disbursement payments will continue until
the initial specified timeframe is concluded.
In the other type of annuity plan in the case of the annuitant's death
occurring before the minimum number of disbursements have been made or
before the pre-determined time period has been reached then premiums
are paid to beneficiaries either in whole or in part as a lump sum
payment. If you are considering a long term investment for retirement
and want a plan that will meet your needs for the rest of your life
then a refund annuity could be the right annuity settlement option for
you.
Joint life
and How Joint Life Annuity works
Joint life insurance is when two or more
individuals are covered with the death benefits being paid at the
first death. Premiums are considerably higher than for policies
insuring just one individual as the chances of having to pay a death
claim is higher for the structured settlement company. After the
maturity of the joint life annuity policy both policy holders are
repaid equal amounts over a certain time period. In the case of one of
the annuitants death the remaining amount is repaid to the other
person.
Most commonly joint life insurance
products are used by spouses and partners in business. It offers
coverage best suited for people involved in some kind of co-dependent
relationship where if one spouse or a business partner dies the
surviving spouse or partner would financially vulnerable.
A different type of a joint life insurance
policy however pays out on the second death not on the first death as
above. This policy option may be useful to people with high risk
occupations that have a common interest in protecting the same people
or assets. As an example a second death life insurance policy could be
set up as a trust for a couples children. On the death of the second
parent the children will receive payment without having to go through
the process of probate in court.
One should consider whether it is more
beneficial to use a joint life insurance policy and pay the higher
premiums or to go with two individual life insurance policies each for
the equivalent amount of coverage.
A joint life insurance policy may be more expensive than a policy that
covers just the one death but two individual policies may end costing
even more for the combined cost of the premiums. For businesses a
joint life insurance policy is usually recommended by financial
advisors as they need find every possible way of save money to
increase there bottom line.
Joint life insurance policies are
considered the more favorable option for businesses. Small businesses
consisting of just two partners such as a family owned business owned
by a husband and wife benefit greatly from a joint life insurance
policy which helps to ensure that the business can continue to operate
financially at least should one of them die. Also as stated above
joint life insurance can work great as an estate planning product in
the case of both parents dying.
Another option when considering joint life insurance is as mortgage
protection for couples. This can be a consideration when one of the
spouses doesn't have mortgage protection life insurance and there is
an outstanding mortgage balance that remains. It is more advisable
however for each spouse to have their own life insurance for mortgage
protection in the case of the other's death.
In a marriage with two incomes and those incomes are not the same one
of the spouses could possibly benefit too much with the other too
little if a payout had to be made on a joint life insurance policy.
Furthermore with the statistical likelihood of divorce if both people
have their own individual life insurance it would remain with them
them. Having a joint policy would likely result in neither party
wishing to pay the premiums anymore and the policy would lapse leaving
them both without coverage. Plus if divorce occurs and the couple have
children they could be left vulnerable as well. So depending on the
situation a joint life insurance policy can be a good choice.
What is A Term Life
Annuity?
Also known as a term assurance policy a
term life annuity insurance policy is a life insurance product that
gives insurance coverage for a limited period of time. The term life
policy involves fixed rate payments as with normal life insurance
policies and it is really just the term period that differentiates the
two. When coverage expires in a term life insurance policy contract
the insured needs to obtain another coverage.
The benefits term life insurance provides are that it is the least
expensive way to get good benefits out of an insurance policy. If the
insured dies before the term life period their beneficiaries are
entitled to a payout as per the policy. A downside can be that if the
insured falls victim to a terminal illness during the term of policy
and is fortunate enough to survive, getting further life insurance may
not be possible life after the current policy expires as they would be
be deemed uninsurable. However some term life insurance policies come
with guaranteed reinsurability clauses but the premiums would be quite
substantial.
How does
Term Life Insurance Work?
In normal life insurance a guaranteed lump
sum of capital accrues over time to provide beneficiaries with an
income in the case of your death. This is not the case with term life
insurance however there is no cash accruing it is merely an instrument
designed to create a required sum of survivor capital for low payments
for a fixed term. In choosing term life insurance the objective is
receive the necessary amount of coverage needed for ones basic family
security for low out-of-pocket cost, especially for younger
individuals.
To benefit fully from term life insurance
policies you should select the term duration that suits your needs
best. This entails analysis of our long term debt and future financial
requirements. You should consider the various term life insurance
options and go with the policy that fits best your future plans.
Three common types of term life insurance policies are:
Level Term Life Insurance: Here rates and coverage amounts stay the
same through the term of the insurance policy. Decreasing Term Life
Insurance: While the rates remain the same the coverage amount
decreases every year. Annual Renewable Term Life Insurance: Here the
term life insurance policy offers guaranteed renewals every year but
with a rate increase at each renewal.
Getting a Term
Life Insurance
For affordability amongst life insurances
policies term life insurance is a very good coverage option. A full
physical examination that is generally required for most life
insurances may not be needed here but you may still have to deal with
some rather intrusive questions. The first step is to shop around and
get term life insurance quotes from insurance agents or online
insurance companies.
These are three of the more common Annuity Settlement Options and
hopefully you now have a better understanding of how these annuities
work. You will find plenty of structured settlement companies
advertising their services online so it is very easy to shop around
for the best deal.
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