Single Life Annuity
A single life annuity is simply an annuity, either deferred or immediate, that is owned by one single individual. It is not owned jointly between a husband and wife. With most single annuities, the payments end upon the death of the annuitant. However, there are a number of options for naming beneficiaries and guaranteeing that principal will not be lost if the annuitant dies before the full amount of his or her premiums are returned.
A single life annuity can be a deferred annuity purchased as part of a retirement plan or it can be an immediate annuity for which payouts will begin within the next 12 months. Deferred single life annuities are subject to the same distribution restrictions that other retirement investments are. A 10% penalty is incurred on distributions that begin before age 59 ½. Plus, the distribution will be subject to ordinary income tax rates for the tax year in which the distribution was taken. For this reason, all annuity investors are always reminded to seek the advice of a qualified tax professional prior to purchasing a new annuity or annuitizing one that is currently in a portfolio.
An immediate single life annuity begins paying the owner immediately. If he or she elects to receive payments monthly, then payments begin the next month. If he or she elects to receive payments quarterly, the payments will begin within the next quarter. This type of annuity, which is usually purchased with a single premium, is often purchased in lieu of a single premium whole life insurance policy. While they function in similar ways, the immediate annuity can guarantee income for life or for a predetermined number of years.
Why Choose a Single Life Annuity Instead of a Joint Annuity?
In most cases, the amount of the payouts on a single life annuity are higher than those paid out on a joint annuity. This is especially true if the husband is older than the wife. The payouts on a single life annuity only take into account the age of a single annuitant. If he or she is 78 years old and purchases a single fixed immediate annuity in the amount of $100,000, the payments will be based on his or her life expectancy only. With a joint annuity, however, if the husband is 78 and the wife is 74, that same $100,000 will have to cover both of them while they are both alive and will be based on her life expectancy, not his. Therefore, the payments will typically be significantly lower on a joint annuity than on a single life annuity.
Can Benefits be Paid to a Beneficiary Other Than a Spouse?
A straight life annuity is one for which payout will end with the death of the annuity owner. However, most insurance companies will offer a kind of refund option on a single life annuity. For example, the annuity owner can name a beneficiary who will receive the amount of the account that had not yet been paid at the time of the annuitant's death. If $55,000 remains in the annuity account, it will be paid to the person of the annuity owner's choosing. He or she can also choose what is known as a "guaranteed period" or "period certain" option.
With this option, the annuitant opts to have payouts made for a certain number of years. If he or she dies before the number of years in the contract have been completed, the beneficiary will receive payments for that number of years. If the period certain was 25 years and the annuitant dies in year 6, the beneficiary will receive payments for 19 years.
Note that these refund options are significantly different than an annuity that is purchased jointly between a husband and wife.
Which Life Insurance Companies Sell Single Life Annuities?
Almost all life insurance companies sell single life annuities. Regardless of which company an investor chooses to purchase a single life annuity from, he or she must make sure that the company is financially sound. Reviewing the company's credit rating is always recommended.
Annuity ratings are issued by the credit rating agencies. The four major credit rating agencies in the US are A.M. Best, Fitch, Moody’s Investors Services and Standard and Poor’s. Each of these agencies rates the financial stability of the insurance and annuity companies it reviews. Financial stability and security are based on several proprietary factors, but two of the most important are the company's ability to meet its future financial obligations and its ability to manage financial risk. Among the other important factors are the company's cash reserves and it's ability to raise cash.
New York Life Insurance Company is one of the most reliable life insurance companies in the United States today. Of all of the insurance companies in the country, it is the only one to have received the highest possible credit rating from each of the four credit rating agencies at the same time. New York Life Insurance and Annuity Company (NYLIAC), the subsidiary of New York Life that sells single life annuities and other annuity products, offers annuities for individual investors and as part of corporate defined contribution plans.
Metropolitan Life (MetLife), Prudential, TIAA-CREF and Massachusetts Mutual Life Insurance Company also receive very high ratings from each A.M. Best, Fitch, Moody’s and Standard and Poor’s. These companies have also demonstrated the ability to meet their financial obligations in good and bad economic climates. These insurance companies have the least amount of risk of default on their debt.
And default on debt is what investors need to watch out for. Annuity and life insurance contracts represent a financial obligation to an insurance company. The company’s ability to manage debt and financial issues are the keys to their high ratings. Just as a consumer’s ability to handle debt and payments on that debt are reflected in his or her credit score, a life insurance company's ability to handle debt and make payments are reflected in its credit score.
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