Life Annuitization Option
I have been advocating to financial planners for years to NEVER, ever sell immediate annuities with life annuitization, or annuitize a deferred annuity with the option to annuitize for life. Single Life annuitization option is a legal way for an insurance company to ripp-off the public and get away with it.
Let’s say you invest $500,000 in an immediate annuity for single life annuitization only. Let’s say the policy pays you $40,000 for the first year, and then you died in a car accident in the following year. Your spouse calls the insurance company and requests the balance of the immediate annuity. The annuity company tells the spouse, she gets NOTHING! The contract specifies that the immediate annuity policy will pay $40,000 per year as long as the annuitant/owner lives…however long that is. And unfortunately, the annuitant/owner died, and the balance of the contract becomes the insurance company’s asset. The spouse goes on welfare, and the agent who sold the policy will probably be sued for selling the product (and he or she only received a 1.5% commission).
Why do they sell these types of policies? Insurance companies are one of the top three lobbyists in the nation to the political parties. Immediate annuities have been around since World War 2. Soldiers who could afford a $5,000 annuity would insure their wife’s income for life…just incase they died. In the 1950’s the lawyers got into the picture and took a single page annuity certificate, and created a 25 page prospectus (they call a policy) to give the insurance company a financial edge over the investor. Since then, the lawyers, the lobbyists, and the politicians have been protecting the insurance company. Then whose is protecting the public? Certainly not the immediate annuity agent!
But John, there are other types of life annuitization options…yes there are. Let’s go over the additional following choices for life annuitization:
- Life with 5 Year period certain
- Life with 10 Year period certain
- Joint Life
Above choices will pay a lower monthly or annual payout than single life annuitization. The better the options…the smaller the payout becomes. Life with 5 year period certain will pay the balance over a 5 year period after the original annuitant dies, and Life with 10 Year period certain will pay the balance over a 10 year period after the original annuitant dies. Joint life will pay the spouse (after the original annuitant dies) over his or her lifetime (however long he or she lives and the balance becomes the insurance companies asset, once he or she dies)…another ripp-off!
There are variations of Joint Life which have inflation indexed features (or cost of living adjustment)…and again, your payout goes down even lower!
Let’s look at a payout structure for $500,000 investment in an immediate annuity:
- Single Life Annuitization = $40,000 payout per year
- Life Annuitization with 5 Year Period Certain = $38,000 payout per year
- Life Annuitization with 10 Year Period Certain = $35,000 payout per year
- Joint Life = $30,000 payout per year
- Joint Life with Inflation Indexed = $23,000 payout per year
Now, understand a very important point about immediate annuities…they are liquidated to ZERO, and are irrevocable (once the free look provision passes – usually 3 days after the policy is received by the annuitant/owner).
I would rather do what’s called “recovery planning,” so I can liquidate for a monthly or annual payout (for a much higher payout than above), liquidate the assets any time I want, and recover 100% of the original investment principal (plus interest) with no strings attached.
There is no need to stick your neck out and suffer by buying an immediate annuity and annuitizating for a life annuitization option. SO BE CAREFULL!
Sincerely,
John Bagwell
The Truth About Financial Products.com
www.thetruthaboutfinancialproducts.com