Structured Settlements : Annuity

Life Annuity

The life annuity (also known as a single-payment annuity) is a financial instrument that allows for a seller (issuer) - typically a financial institution such as a life insurance company - to make a series of payments in the future to the buyer (annuitant) in exchange for an immediate payment of a known sum with a certain net present value. The payment stream from the issuer to the annuitant has an unknown duration based principally upon the life expectancy of the annuitant. Generally, such an instrument stops payment at the death of the annuitant. However, it is possible to structure a life annuity so that the payments instead only stop upon the death of a second of two annuitants (i.e., a joint and survivor annuity); sometimes the instrument reduces the payments to the second annuitant.

The "pure" life annuity can have harsh consequences for an annuitant who dies before recovering their investment in the annuities. The risks of such a situation, called a "forfeiture", can be ameliorated by the addition of an added clause under which the annuity issuer is required to make annuity payments for at least a certain number of years (the "period certain"); if the annuitant outlives the specified period certain, annuity payments then continue until the annnuitant's death, and if the annnuitant dies before the expiration of the period certain, the annuitant's estate or beneficiary is entitled to collect the remaining payments certain. The tradeoff between the pure life annuity and the life-with-period-certain annuity is in exchange for the reduced risk of loss, the annuity payments for the latter will be smaller.

Factors:

Many potential annuitants are already familiar with the concepts involved through knowledge of their own pension, whether from a business or government job, yet there can be a notion that annuities have limited value for the buyer or that the buyer cannot expect a fair payout from the investment. Some argue that this instrument has no advantage for the buyer. The other side of this notion is that the conditions for the instrument are stacked in favor of the issuer, though issuers have grappled with this instrument for years and do face risk.

From the annuitant's viewpoint, factors related to the instrument can be fairly complicated. Some studies have stressed that rational decisions may be difficult for the buyer in this case. As well, there are the ethical issues that can be of concern dealing with fair play. For example, witness reports of malfeasance on the part of some playing the role of issuer, such as selling unsuitable annuities.[citation needed] In the U.S., the individual states provide some assistance to the buyer and some regulation of the issuers.

From the issuer's viewpoint, there are many technical factors that determine the amount of an annuity payment for the life expectancy of the annuitant and that influence yields on the investments annuities issuers invest premiums in. There are expenses (including distribution costs) related to managing the instrument and profit expectations that affect the decisions about the payment. Risk management costs for the issuer can become more problematic, if annuitant's returns are given more weight than has been the case.

Other factors are concerns, such as inflation and usury, which might be considered auxiliary by the issuers but not by the annuitants.

See:
• Annuity
• best fixed annuities
• best fixed annuity rates
• Deferred Annuity
• fixed indexed annuities
• Life Annuity
• credit shelter trusts
• Structured settlement companies
• Structured Settlement Calculator
• Florida structured settlements
• Texas Structured Settlement
• Cash for Structured Settlements
• Structured settlement factoring transaction
• Why Selling Structured Settlement Payments Might Be Choice For You
• What Is Selling Structured Settlements
• Structured Settlements The Benefits of Having Cash In Hand

This article is licensed under the GNU Free Documentation License.
It uses material from the Wikipedia article "Life Annuity".