Annuity vocabulary question.

[LostDollar]

In trying to understand some annuity features, I see two terms that are confusing me.

Lifetime payment amount, Lifetime Annuity Payout (or conceptually similar words depending on the carrier)

and

Annuitization

what is the difference?

Thank you.

 

[DHK]

The terminology will be different depending on the type of annuity and the method of payout.

A SPIA (Single Premium Immediate Annuity) is automatically annuitized... meaning that you have given the insurance company the principal balance and they pay you a given amount of income for your lifetime.

A deferred annuity (which is nearly everything else out there) can have income programs, but you can still get at the original (remaining) balance and cash it in or transfer it elsewhere.

Deferred annuities can also be annuitized in a similar manner to how a SPIA works. Again, you give up the entire balance and you receive a stated amount of income for your lifetime.

I don't believe that most deferred annuities get "annuitized", but they are often sold with their income programs built in to the contract (sometimes with or without an additional fee).

 

[Newby]

In trying to understand some annuity features, I see two terms that are confusing me.

Lifetime payment amount, Lifetime Annuity Payout (or conceptually similar words depending on the carrier)

and

Annuitization

what is the difference?

Thank you.

Some annuities have a feature where you can turn on a guaranteed lifetime payment without annuitizing. Meaning it’s still your money. So if you die without going through all the cash in the annuity your beneficiary still gets the balance. And you can turn it off and walk away with the balance if you want to after you started the payments. It’s still yours so you have full control.

If you annuitize you are saying, here is all this money. It’s yours now Mr insurance company. I just have the income stream based on the terms of the contract. I have no actual money. It’s just like a pension in that way.

 

[LostDollar]

Some annuities have a feature where you can turn on a guaranteed lifetime payment without annuitizing. Meaning it’s still your money. So if you die without going through all the cash in the annuity your beneficiary still gets the balance. And you can turn it off and walk away with the balance if you want to after you started the payments. It’s still yours so you have full control.

If you annuitize you are saying, here is all this money. It’s yours now Mr insurance company. I just have the income stream based on the terms of the contract. I have no actual money. It’s just like a pension in that way.

I am now wondering about those income riders. I have been trying to understand brochures about one product.

It seems like a fixed, or increasing, payout percent applied to a declining income balance would result in declining annual payments and could actually result in the rider dying, leaving the annuity owner without any income.

Declining and non-existent lifetime payments don't seem like an optimal situation for an annuity owner.

This carrier's brochures seem to me to say that the GLWB rider CAN end, which I assume means there is no more LPA.

Maybe annuitization is actually a better option if income is the concern.

 

[adjusterjack]

I suggest getting copies of the actual contract rather than rely on brochures.

 

[Tahoe Ray]

It seems like a fixed, or increasing, payout percent applied to a declining income balance would result in declining annual payments and could actually result in the rider dying, leaving the annuity owner without any income.

That's not how those riders work. Talk to an agent.

I suggest getting copies of the actual contract rather than rely on brochures.

You suggest that an insured analyze a contract vs. dealing with an agent who works with these products every day?

I should just tell my HVAC guy how to service my a/c and heating unit because I read the manual?

 

[LostDollar]

I should just tell my HVAC guy how to service my a/c and heating unit because I read the manual?

I am not sure where this HVAC comment came from; however when the A/C failed, I read the warranty contract, paid for a weekend service call and got a replacement motor on order about a week before the expiration of the 10 year warranty. Since I was also: on their regular maintenance program, I am a senior citizen, and I was homebound recovering from a significant surgery, they also worked hard to get me fit into their schedule early in the ensuing work week.

 

[Tahoe Ray]

I am not sure where this HVAC comment came from; however when the A/C failed, I read the warranty contract, paid for a weekend service call and got a replacement motor on order about a week before the expiration of the 10 year warranty. Since I was also: on their regular maintenance program, I am a senior citizen, and I was homebound recovering from a significant surgery, they also worked hard to get me fit into their schedule early in the ensuing work week.

I was quoting @adjusterjack on that one.

Just trying to use a metaphor. It's really hard to analyze this stuff from a brochure or a contract.

At some point, you just need to trust a professional and let them help you.

Spending a few days/months/hours whatever analyzing this stuff is a waste of your time.

You should spend that time vetting agents. Asking your friends, looking them up online, interviewing them, etc.

You don't have to do all of this alone. It's good that you understand what you own, but let someone who truly knows these products and who you trust explain it to you.

 

[Newby]

I am now wondering about those income riders. I have been trying to understand brochures about one product.

It seems like a fixed, or increasing, payout percent applied to a declining income balance would result in declining annual payments and could actually result in the rider dying, leaving the annuity owner without any income.

Declining and non-existent lifetime payments don't seem like an optimal situation for an annuity owner.

This carrier's brochures seem to me to say that the GLWB rider CAN end, which I assume means there is no more LPA.

Maybe annuitization is actually a better option if income is the concern.

I have no idea what you are looking at. But if you are looking at an actual lifetime income rider it is guaranteed to never reduce and to never end until you do.

 

[Allen Trent]

I am not sure where this HVAC comment came from;

HVAC is a rider on some annuities. High Value Annuity Commission rider............just kiding