Single-premium immediate annuities offer value
July 17, 2018 by Elliot Raphaelson, Tribune Content Agency
Many people believe that all annuities are toxic. However, I believe that there are annuities that make sense for many families.
Why do so many supposed experts hate annuities? One argument is that they are too expensive, and agents receive very high commissions. I agree that this is often the case, but there are annuities with low commissions that offer significant value.
Single-premium immediate annuities are an example. Commissions are very low, and for many families they provide an important benefit. Yet, according to LIMRA, an industry trade group, immediate annuity sales in 2017 were only $8.3 billion in the 4th quarter of 2017, just over 4 percent of total industry sales. Because commissions are not high for this product, many agents don’t emphasize the product.
Exactly what is a single-premium immediate annuity? With this annuity, the purchaser invests a fixed dollar amount and in return receives a lifetime income, regardless of how long the purchaser lives. An obvious risk for the buyer of an immediate annuity is death a short time after the purchase, in which case the insurance company stops paying income. For this reason, many individuals resist buying such annuities. However, it’s important for people to know that there are ways to address the risk of not living long enough.
A buyer of a single-premium immediate annuity can purchase the product with a minimum time guarantee. For example, an individual can purchase a “period certain” annuity that guarantees payments for as short as five years and up to 30 years. As expected, the monthly payment from the insurance company will vary based on the period you select. The longer the guaranteed payment, the lower the monthly benefit.
Another option is a joint policy covering both spouses. After one spouse dies, the surviving spouse would receive monthly payments for the rest of his/her life. Naturally, the monthly payment for a policy covering two people would be much less than the payment covering one. Other alternatives are also available.
Who should be interested in this product? There is a great deal of uncertainty in financial markets. For more than five years, the stock market has done very well. However, there is no guarantee that this trend will continue. Many experts predict the bull market will end shortly. Rates of returns for bonds have been increasing recently, but there is no guarantee what the returns will be in the future. Many individuals don’t know whether their assets will last a lifetime because of the uncertainty of returns. Against this backdrop, a single-premium immediate annuity from a stable insurance company at least guarantees a lifetime income. Naturally, you should also maintain some assets for emergencies, and it is important to have some coverage for long-term care.
What are the returns you can expect now from these policies?
For $100,000, a 65-year-old male can buy a “life only” policy in a “non-qualified” account (i.e., not used to fund a tax-advantaged retirement plan) from an insurance company with an A-plus rating and get a monthly income of approximately $562 per month. Life-only annuities offer the highest payout.
For a joint “life-only” non-qualified account, covering a 65-year-old male and a 65-year-old female, a purchase of a $100,000 plan under the same terms would provide a monthly income of approximately $473 per month.
Those figures come from annuity expert Stan Haithcock (www.stantheannuityman.com). At no cost you can get his single-premium immediate annuity owner’s manual, which explain all your options clearly, and as well as owner’s manuals for other annuity products. I recommend his services highly. He values services to clients, not high commissions.
(Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.)
(c) 2018 ELLIOT RAPHAELSON. DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC.
