What is a Lifetime Annuity?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 September 2019
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A lifetime annuity is a type of annuity payment that is structured for regular disbursement to the owner of the annuity for as long as he or she remains alive. This type of payment structure is often associated with pension contracts that are offered through insurance companies, and makes it possible to enjoy additional financial security during the retirement years. There are several features associated with most lifetime annuity plans that make this type of investment strategy worth considering.

One of the greatest benefits is that a lifetime annuity plan ensures that regular annuity payments are received up to the time that the recipient passes away. This is in contrast to other annuity plans in which the payments only continue up to the point that the contributions to the plan have been exhausted. With a lifetime annuity strategy, the recipient does not have to be concerned about reaching an age where the payments stop and one source of income ceases to exist.


Another important characteristic of a lifetime annuity plan is how the amount of that monthly disbursement is calculated. With this type of annuity program, the age at enrollment, gender, general health, and the number of individuals covered under the plan impact that monthly amount. The prevailing rate of interest and the amount of the monthly premium paid into the fund over the years will also have some impact on the amount of that regular payment. Unlike some other plans, a lifetime annuity plan is not necessarily restricted to those who are in the best of health. Someone with an ongoing health issue and who has a shorter life expectancy would often be considered eligible by insurance companies offering this type of annuity plan.

In many nations, payments into a lifetime annuity plan are not subject to taxes at the time the payments are made. As an added benefit, any increase due to interest earned on the balance is not subject to taxation at the time the increase is earned. Instead, taxation is deferred until the annuitant begins to receive disbursements from the plan, and even then taxes are only assessed on the total amount of payments received in a given tax year.

More recently, some lifetime annuity plans have appeared that make it possible for a spouse or other beneficiary to continue receiving disbursements from the plan after the annuitant has died. Sometimes referred to as a joint annuity plan, this approach helps to ensure that a surviving spouse continues to receive financial support from the plan. That level of support may or may not continue until the spouse passes way. The exact structure and duration of the payments will depend on whether the terms of the plan allow for disbursement of funds in the account at the time the annuitant dies, or commit the insurance company to making disbursements to the spouse even after the balance in the account has been exhausted.


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