Annuity Payout OptionsAnnuities offer a surprisingly varied array of payout options, each designed to serve a particular purpose. Let's briefly look at each one.
- Systematic withdrawals. Unlike the other payout options discussed, systematic withdrawals do not require the annuitant to surrender the value of his or her account to the insurance company in exchange for payments. Rather, he or she simply designates a particular dollar amount to be liquidated from the annuity each month, quarter, or year, and sent to him or her.
- Life annuity. From the point of annuitization, the annuitant receives a guaranteed fixed dollar amount monthly for the remainder of his or her lifetime. Upon his or her death, all payments cease. This option provides the highest monthly payout, but the greatest amount of risk. For example, if the annuitant dies before receiving the entire account value, the remainder of the money reverts back to the insurance company. This is true even if the annuitant receives only one monthly payment.
- Life annuity with period certain. The annuitant receives payments for life, with a certain period of time guaranteed, for example, 10 or 15 years. If the annuitant dies before expiration of the period certain, payments continue to the named beneficiary for the remainder of the period. If the annuitant outlives the period certain, he or she continues receiving payments until his or her death, at which time all payments cease. The longer the designated period certain, the smaller the payments.
- Joint life with last survivor. Two people, such as a husband and wife, are covered by the same annuity and receive one joint payment each month. Payments will continue as long as one of the annuitants remains alive. Upon the death of one of the annuitants, payments continue to the survivor at the same amount or at a reduced amount, depending on the designation made at the time that the contract was annuitized.
- Life with unit refund. The annuitant receives payments until his or her death. If the annuitant dies before receiving an amount equal to the value of the account, the named beneficiary receives the money remaining in the account. This is often paid in a lump sum settlement.