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A life annuity is designed to provide an
individual investor with a guaranteed income for
the rest of his or her life. In some cases, a
life annuity can also guarantee an income for
the spouse or other relative of the person in
the event of the death of the annuity holder.
This means that no matter how long the investor
lives, he or she will be guaranteed an income
for the rest of his or her life. There is no
worry about outliving the amount you have saved.
Life annuities are generally purchased with what
is known as a guarantee period, for some amount
of time, such as 10 years. This guarantee period
assures that payments will continue for the
specified guarantee period or the remainder of
the annuity holder’s life, whichever is
longer. For example, if you establish a life
annuity this year and die five years later,
annuity payments would continue to be made for
another five years (assuming a 10 year guarantee
period).
An optional feature of life annuities is the
refund feature. This feature provides that if an
individual pays one premium for a life annuity
and dies before receiving the entire amount, the
beneficiary of the annuity holder will receive a
refund of the difference.
For instance, if the annuity owner paid a
$10,000 premium to establish the life annuity,
and then died after receiving only $4,000 in
annuity payments, the annuity owner’s
beneficiary would be entitled to a refund of
$6,000 if the life annuity had a refund feature.
The $6,000 is the difference between the $10,000
original value of the life annuity and the
$4,000 that was paid out while the investor was
still alive.
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As
any worker knows, it can often be difficult to save
for retirement, college costs, buying a home, or other
major financial goals. It is often a struggle just to
pay the bills every month, and finding extra money
with which to invest can be a real struggle for most
people.
