Annuities as an Asset Class for Fee-Based Advisors l 17 © Envestnet 2022
A variety of other flavors will lower the payout rate but may otherwise make
the income annuity a more palatable choice. By offering less mortality credits
to the risk pool because you want some protection for your beneficiary in the
event of an early death, you should, in turn, expect to receive less mortality
credits back from the risk pool in the event of a long life. This is the nature of
the trade-off that results in a lower payout rate for added protections. Other
flavors of annuities that lower the payout rate in exchange for providing
protections to a beneficiary for an early death include:
Cash refund provision: Provides a cash refund of
the difference to the beneficiary if death happens
before the owner receives cumulative payments
from the annuity that add up to the initial premium
payment. CANNEX reports that about half of the
requests it receives include the cash refund.
Lifetime with ten-year period certain annuity:
Pays for life. If death happens before annuity
payments were made for at least ten years, the
beneficiary continues receiving payments for the full
ten years. These period-certain guarantees can also
be arranged for any number of years, such as five,
fifteen, or twenty.
Installment refund: Works very similarly to the cash
refund, except beneficiaries receive the difference as
continued annuity payments in installments until the
full premium has been returned, rather than receiving
a one-time refund.
Period certain: An income annuity does not require
lifetime payments. It may just make payments for
a set period. This works the same way as building a
bond ladder and can be an alternative to individual
bonds when considering retirement income bond
ladder strategies.
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