Payout Phase
At the beginning of the payout phase, the investor may receive a lump-sum payment, or the investor may choose to receive the payout as a stream of payments at regular (usually monthly) intervals.
If the investor chooses a stream of payments, he or she will have a number of choices regarding how long the payments will last. Under most annuity contracts, the investor can choose to have the annuity payments last for a period that he or she sets - for example, 10 years - or for an indefinite period, such as the lifetime of the client and his or her spouse or other beneficiary.

During the payout phase, the annuity contract may permit your client to choose to receive either a lump sum payment or periodic payments  that vary based on the performance of separate account . The amount of each periodic payment will depend, in part, on the time period selected for receiving payments.

When the investor decides to annuitize the contract, a specific payment option which usually cannot be changed in any way is locked into the annuity. The value of the account can either be drawn in a lump sum or annuitized over the investor's lifetime.

There are several annuity payout options available to your clients, distinguished by how long each one pays out its benefits:

  • Life Annuity: This type of annuity payout option usually provides the largest periodic payments, as there are no added options on the contract. The annuitant simply receives periodic payments (monthly, in most cases) over his or her lifetime.
     
  • Life Annuity with Period Certain: An investor can purchase an annuity that guarantees payment over a certain period of time in addition to lifetime payments. If the annuitant dies before the certain period, the beneficiary will receive payments for the remaining time. If the annuitant dies after the period certain, no payments are made to the beneficiary, but payments will have been made to the annuitant up to the time of death.

For example, a client who purchases a 10-year period certain annuity will have a guarantee from the insurance company: payments will be made for the life of the investor or for a period of 10 years, whichever is greater. If the client dies after three years of payments, the beneficiary will receive the annuity benefits for the remaining seven years. If the investor lives for 16 years after annuitization, he will receive 16 years of benefits; the beneficiary, however, will receive nothing.

  • Joint Life with Last Survivor: This type of annuity payout option covers two or more people, usually a husband and wife, and is structured to continue payments to the survivors after the death of the first person. In other words, the annuity will continue to pay benefits as long as one of the annuitants is alive, and it will cease payments upon the death of the last annuitant.
     
  • Life Contingency: This is simply an annuity with a death benefit attached. The contract stipulates that a full contribution will be made to the account if the owner dies during the accumulation phase. The beneficiary in turn receives the full payout amount of the annuity.

 

Exam Tips and Tricks
Make sure you know the various types of annuity payouts and the differences between them. You will probably be asked to match an annuity to an investor\'s needs or to identify the annuity based on particular characteristics.



Annuity Distributions

Related Articles
  1. Retirement

    Selecting The Payout On Your Annuity

    Make sure you understand your options for withdrawing your funds from this complex instrument.
  2. Retirement

    How a Fixed Annuity Works After Retirement

    These popular investments can provide a steady stream of income during your retirement years. Here are the details.
  3. Retirement

    How to Use Annuities for Retirement Income

    We explain how to use annuities for guaranteed income in retirement.
  4. Retirement

    Immediate Annuities: Guaranteed Payout At A Price?

    This vehicle can have very low, or even negative, rates. Find out when it pays to invest.
  5. Financial Advisor

    Is Annuitization Your Best Strategy?

    Annuitization has traditionally offered annuity owners a stream of income they cannot outlive, but there are some disadvantages to this form of payout. Consider alternatives, such as income-benefit ...
  6. Retirement

    What Is the Best Age to Get an Annuity?

    Optimizing the benefits of an annuity means guaranteeing a stream of income you can't outlive.
  7. Retirement

    Are Annuities Retirement-Only Investments?

    Learn more about why annuities are generally purchased and the way that they can positively and negatively affect an individual preparing for retirement.
Frequently Asked Questions
  1. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  2. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  3. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
  4. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ...
Trading Center