Insurance

Annuities can be described as a financial contract with insurance company that helps people save money for retirement. The money that are deposited into such provisions grow all the time, they are tax-deferred until they are withdrawn that happens generally after the person reaches retirement age. A fund that brings income to the person insured during retirement is called a single life annuity. The one who is insured is called annuitant. Further some information about annuities is provided to those, who search for such financial product.

Different payout options are available in single life annuities. In straight annuities, the money is paid out till the death of annuitant. There is also a possibility to purchase a refund option. According to this, after death of the annuitant, any remaining money in the account will be forwarded to beneficiary, whose name is stated in the contract.

There is an interesting option of these contracts called a guaranteed period or term. Guaranteed term ensures that payments will be made for stated number of years, despite if the annuitant is alive. If he or she will die till the end of guaranteed period, the payments will be made to estate of annuitant or their beneficiary, stated in the contract until the term comes to an end.

Interest earned with the funds is tax-deferred till the time the interest is withdrawn. In the USA, all annuitants that are below age fifty-nine and a half must also pay a penalty tax on funds, that are withdrawn from single life annuity. This penalty tax comes with income tax due on the withdrawal.

In the majority of the cases, a contract can be deferred or immediate. Deferred single life annuities are split into two distinct periods; known as the accumulation and payout phases. First, during the accumulation phase, the funds are deposited into the account where they earn interest over a number of years. After that, throughout the payout period, payments are received by the annuitant. These comprise the principle and accumulated interest earned over the period. The interest portion accumulated is taxed, in accordance with the annuitant's current tax rate.

When purchasing immediate annuities, the holder starts receiving payments from the first year of the contract. The remaining amount earns interest that is tax-deferred. Just like with deferred annuities, income tax on the interest is charged when the interest is withdrawn.

Joint and survivor annuities are more preferred for married couples than separate single life annuities. When purchasing joint annuities, both spouses will receive retirement income payments. Upon the death of the one spouse, the other will receive the remaining value. The payments will be made to surviving spouse during period, specified in the contract.

It can happen that income from an annuity is not needed during the retirement time. Then, couples can use the funds to buy a joint policy. These funds are also subject to income and penalty tax.

If further advice on any financial product is needed, including a single life annuity, it is strongly recommended to take appropriate legal advice. Before signing any agreements it is very important to check the credentials of the all parties involved.