Annuity Options

You can also choose the period over which your annuity will be paid. Here are some common options:

  • Straight life annuity -- You receive an income for as long as you live. However, there are no payments to anyone after you die. This type of annuity contract is sometimes called a "pure" annuity. You get payments for as long as you live -- no more, no less. This type of annuity provides the most income per dollar of purchase money. It is recommended for someone who wants the most income possible and either has no dependents or has taken care of them through other means.
  • Life annuity with period certain -- You receive an income for as long as you live. If you die within a certain period after you start getting paid, usually 10 or 20 years, your beneficiary gets regular payments for the remainder of that period. Because this continuation feature is an added benefit, the amount of monthly income per dollar of purchase money is less than under a straight life annuity.
  • Installment refund annuity -- You receive an income for life. If you die before you have received as much money as you paid in, however, your beneficiary receives regular installments until the total payments equal that amount.
  • Joint and survivor annuity -- This annuity pays benefits to one or more designated persons until the last survivor dies. Under some annuities of this type, the size of the payments is reduced after the death of one of the annuitants.

Which type of annuity contract is the best? The straight life annuity gives more income for your money than any other annuity. But, at the same time, it stops payments when you die, whether that is a month or many years after the payout begins. Your choice is best governed by the needs of your family.

And there is still one other choice -- the matter of how your annuity payments are linked to the insurance company's investment returns.

Under a fixed-dollar annuity, the insurance company invests the money you pay in bonds and mortgages with fixed rates of return. You are guaranteed at least a specified minimum amount in each annuity payout period. Reasonably favorable investment returns will enable the company to make your annuity payments higher than the guaranteed minimum amounts. The account values of deferred contracts would also increase.

Under a variable annuity, the money generally is invested in common stocks or other equity (ownership) investments. The income you receive will be linked directly to the market values of the investments and will vary during the payout period.