Diversifying your portfolio so that it includes both fixed and variable life annuities will not only safeguard against the possibility of forfeiture, but can also provide you financial security later in life. Keep reading to learn more about life annuities and how they can benefit you.
1. What Is a Life Annuity?
If you are part of the middle class and currently advancing your career, a financial company has probably offered you a life annuity plan at some point. But what exactly are they? Well, life annuities are insurance policies that pay a regular sum to the annuitant, or owner of policy, after a certain period of time and until their death. In turn, the annuitant is expected to pay either a lump sum or a set regular premium for a period of time, which is known as the accumulation phase, prior to the start of the payouts, otherwise known as annuitization. Individuals often purchase them as a way to budget for retirement and enjoy a stable income.
2. Safeguard Against Possibility of Forfeiture
Most life annuity plans have payout systems that end upon the death of the policyholder. This means that any unpaid annuities amounting to the paid-up value of the policy will be forfeited if the annuitant happens to die before they are paid. This allows the companies that offer these insurance products to make a profit. With a broad sample of policyholders, there will be a significant amount of forfeitures that helps offset any potential loss incurred whenever someone outlives the paid-up value of their annuity plan.
It is therefore important to safeguard against the possibility of forfeiture. Life annuity providers usually allow the addition of a secondary beneficiary to the policy for an extra fee. While this inflates the overall cost, it is a valuable precautionary measure against forfeiture if you do not outlive the cost of the policy. Therefore, before you purchase one, make a modest assessment of your health to determine whether it would be best to include a secondary beneficiary or dependent who stands to greatly benefit from the annuity payouts in case you die too early. More often than not, adding a secondary beneficiary will make the life annuity plan more useful.
3. Explore the Possibility of Your Company Paying Your Premiums
If you are a middle class worker seeking to make the most out of your income, inquire whether it is possible for your company to pay for your life annuity premiums as part of your benefits. This allows you to maximize what you earn from work by minimizing the amount you need to declare as income for any tax period. If you can set up an arrangement wherein premiums are deducted from your salary and paid by the company, you could legally avoid paying taxes on the sum that would go toward your annuity payments. Many companies will agree to such an arrangement, since it helps them a reputation as a good employer without any extra cost.
Moreover, if the company you work for is able to purchase life annuity plans for a large number of employees, it may even secure a discount in premiums from the life annuity provider. If not, it is also likely that the provider would upgrade the plan sold to you through your employer if many employees are availing of it. This allows you to maximize your income even further as you can get a life annuity of greater value than what you would have been able to afford on your own.
4. Buy Fixed and Variable Annuities When Possible
If you are looking to rely on annuities for day-to-day expenses when you retire, it is often prudent to purchase both fixed and variable life annuity plans. Fixed annuity plans guarantee regular payouts of a fixed sum. While this may seem like an attractive option, those relying solely on fixed annuity plans are subjected to constant pressure from inflation. Should it overtake the value of the fixed annuity, you will still struggle to sustain yourself despite receiving regular payouts. It is therefore imperative that you also secure a life annuity plan that adjusts to the ebb and flow of the market. This is where variable annuities are of great importance.
While fixed annuities may provide you with some security, variable annuities have payouts that change, depending on the performance of investment products in which the money you have paid in the way of premiums has been placed. Variable annuities may seem unattractive at first for those seeking financial security upon retirement as it exposes your money to fluctuations in the market. However, it must be acknowledged that while market fluctuations are definitely a possibility, inflation is a guaranteed factor that your money should be protected against. Variable annuities respond to real market situations and afford you the financial security that you need when you retire. When the payout of your variable annuity is good, set aside a portion for a rainy day. Manage your resources wisely. This way, the variable annuity payout will be able to supplement the payouts from your fixed annuity when inflation impairs the purchasing power of your fixed annuity payout.
5. Impaired Life Annuities Are Available
Many people in the United States have health problems. Obesity, for example, is a common health issue that makes insuring a person more costly than ever before. Some people's health problems may be so severe that insurance companies refuse to sell them policies unless they pay an unconscionable amount in the way of premiums. The good news is impaired life annuities are available.
Life annuities are insurance products wherein the risk the company assumes is not the death of the policy holder but the continuity of their life. This means that life annuity providers are willing to confer better rates for individuals who have a lower probability of not outliving the value of their life annuity plan. If you are diagnosed with an ailment that decreases your chances of outlive the value of your life annuity, inform the financial company who will be paying out your annuity. They will probably be willing to give you better rates.