When you buy an income annuity you generally have six to eight options for receiving income. The specifics of each option vary by contract and the ones you choose affects how much your payments will be. Here’s an overview of some of the lifetime income options.

Income guaranteed for your lifetime. You receive income payments, typically paid monthly, that are guaranteed to last for as long as you live, regardless of how long that may be. Payments end upon your death, no matter how many payments you’ve received.

With this single life annuity option there’s no minimum number of payments guaranteed. So it’s possible that your total income payments will be much less than your purchase payment. Because of this risk this option offers you the largest monthly payment of all the lifetime income options.

Income guaranteed for your lifetime with a minimum number of payments guaranteed. To avoid forfeiting a large portion of the amount you spend to buy an annuity if you die prematurely, you can add a guaranteed period to your contract. Guaranteed periods are typically five, ten, 15, or 20 years.

With this option, if you die before the end of the guaranteed period, your beneficiary will receive a lump sum payment or the payments remaining in the guaranteed period.

For example, if you select a lifetime income option with a ten-year period certain guarantee and you die after three years, your beneficiary will receive payments for the remaining seven years. The contract then terminates at the end of ten years. Alternatively, if you live past the ten-year guarantee period, payments continue for as long as you live, but no payments are ever made to your beneficiary.

Adding this guaranteed period results in slightly lower payments than if you choose the option that guarantees income only for your lifetime.

Income guaranteed for your lifetime with a minimum amount guaranteed. If you die before you receive the amount you paid to buy the annuity, the insurance company will pay a lump sum or annuity payments to your beneficiary.

Under the cash refund annuity option, the lump sum is equal to the difference between your total purchase premium and the sum of the annuity payments you received.

Under the installment refund annuity option, the insurance company continues the annuity payments to your beneficiary until the total of the payments equals the purchase premium you paid. For variable payments, the refund is based on the number of annuity units that haven’t been paid before you die.

Article is for educational purposes only and is not intended to provide specific tax or legal advice. For answers to tax questions, please see your tax professional. For legal questions, consult an attorney.

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