Joint Life Annuities

In order to explain joint life annuities we must first understand what an annuity is.  An annuity is a contract usually offered by an insurance company whereby they promise to pay a lifetime income to the annuity purchaser for a set initial premium.  If it is a single premium annuity, the purchaser deposits money with the insurance company for the promise of a set income for life starting at a future date.

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Joint Life Payments

The purchaser may choice to make periodic payments into the annuity contract over a number of years and then at some point in the future start to take guaranteed income from the plan for life.  If it is an immediate annuity, the deposit is made and payments for life will be started. With a single life annuity the insurance company sets a payout schedule for that person based on their age at time the payments start.  This is based on actuarial table that predict the number of years the annuitant will live.  Based on this number, the total dollar amount in taken into consideration and the insurance company will guarantee set payments for life.

How Joint Life Annuities Differ from Single Life Annuities

Joint life annuities are usually purchased by a husband and wife.  The annuity is the same as a single life annuity except that the insurance company guarantees that the income stream will last for both lives.  The husband and wife will start to take withdrawals at retirement and based on both of their ages at the time, the income guarantee will be for as long as either of them is alive. If they both live for 20 years after the start of payments, and then the husband dies, the wife will continue to receive benefits even if she lives another 20 years. 

The monthly payments or annual payments will be less for the same amount of money paid to a single person because one will typically live longer and the benefits will be paid for a longer period of time with joint life annuities. Remember that all payments are based on actuarial tables and two people will usually require more payments that a single life.

What Companies have Joint Life Annuities?

Almost all companies will offer joint life annuities.  It would be extremely unusual for an insurance company not to offer this type of plan. As mentioned earlier, most of these plans are purchased by husbands and wives, although there are certain other situations where they could apply as well. 

Payout Methods

If you and your spouse elect to take payments from an annuity based on your joint lives, you may be able to elect a number of years certain.  In other words, if you and your spouse die before receiving all the benefits in the plan you may be able to guarantee that a beneficiary receives at least a certain number of years of the benefit. 

Check with the insurance company you are thinking of purchasing your annuity with to see what their guidelines are. Most companies will be fairly similar but you should check to make sure you are getting a plan with favorable payout options. Typically, you will not even need to consider what payout method you want until the time of starting distributions, but it is a good idea to get some specifics before you buy the annuity.  There are some differences that may be important to you.

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How are Joint Life Annuities Invested?

Joint life annuities can be invested the exact same way that an individual annuity is invested. You can invest them in a variable annuity which means simply that you will be affected by the ups and downs of the stock market.  You will benefit when the stock market goes up, but your account value will decline in bad markets. 

Joint life annuities can also be invested in fixed rate annuities.  You can select a rate that is offered for a period of time with the insurance company.  You will not realize fluctuations in your account value. Your account value will simply earn the interest which is stated for the period of time.  After the time is over, you will have to decide to reinvest at the then current rates offered by the company.

Whichever way you decide to invest your annuity dollars t makes no difference whether it is a single life annuity or a joint life.  The only difference in the two types of annuities is when it comes time to start taking regular payments.  If you simply start taking regular distributions from you annuity at the time of retirement you will want to watch your account value.  If it goes to zero you will no longer receive payments.  You will want to annuitize your annuity before this happens.

What Happens After Both People Die?

After both people on a joint life annuity die, if the contract had been truly annuitized earlier then there are no more benefits after both people die.  If there is a 10 year certain period on the contract, then the contract will continue paying to the beneficiary of the contract for up to a total of 10 years, including the years that the contract paid to the owners.  For instance, if the spouses took income for 2 years then the husband died and the wife took income for another 2 years and died, the beneficiary would receive benefits for only the 6 remaining years certain.

There are other death benefit options that you need to investigate before you purchase your annuity in the first place.  Remember, an annuity is a contractual agreement between the purchaser and the insurance company.  If you didn’t understand all the specifics at the time you purchased your contract, you will have no recourse years down the road.

Just be sure when you are purchasing your annuity in the first place that you are aware of the payout options available to you and your spouse later on.  At the time you retire, you should probably meet with a financial advisor to select your payout options.  Once you chose them, you are pretty well stuck with them.

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