What Are Retirement Annuities and How Do They Work?

Retirement Annuities protect against the risk of you out living your wealth. Annuities are a way of supplying a stream of income for a guaranteed amount of time. The monthly payout amount of an annuity is determined based on the payout option chosen when you first set up the annuity. When you contribute to an annuity as a lump sum the insurance company takes a fee of your initial contribution and most of your annuity contribution is then invested by the insurance company.

So, what are the benefits of an annuity?

There are several benefits to an annuity, the money is invested on your behalf by the insurance company to your benefit. The value of your annuity grows based on the performance of an equity-based index (S&P 500) with downside protection. This ensures that the value amount of your annuity grows over time to be paid out monthly to you later at the agreed upon date in the case of a deferred annuity. The structure and design of the annuity can differ depending on your age and financial situation. Most annuity contracts have a stated monthly payout amount for every $1,000 your annuity is worth when you decide to start receiving income. An example of a straight life income payout would be for every $1,000 will you receive $7.00 in monthly income for the remainder of your life. If your annuity ends up being worth $100,000 when you start to receive monthly payments you will receive $700 a month for the remainder of your life.

Deferred Annuity	A deferred annuity will start supplying income after the first year.
Immediate Annuity	An immediate annuity will start supplying income payments within the first year and its purpose is to support the liquidation of a principal sum over time.

Each annuity is unique based on the payout option and investment configuration chosen let's take a look at a brief overview.

There are two types of investment configurations: 1.) fixed annuities which supply a guaranteed rate of return and 2.) variable annuities which do not guarantee a rate of return and the cash value is based on the returns of the investment funds invested in. 

There are several types of payout options let us look at a couple different options: 1.) A straight life income payout option pays the annuitant a guaranteed income for the annuitant’s lifetime. This offers protection against the depletion of your savings due to the longevity of your life. When you die, no further payments are made to anyone. 2.) A fixed amount option pays a fixed payment until the contract value is depleted. If you die before the contract is depleted the remaining funds are paid to your beneficiary for the rest of the contract. 3.) A joint and full survivor payout pays out the annuity to two or more people until the last annuitant dies. If one annuitant dies the remaining annuitant will receive payouts on a same payout basis, a two-thirds payout basis, or one-half payout basis depending on how the annuity was written. 4.) A life with period certain payout option is designed to pay the annuitant guaranteed payouts for the life of the annuitant but for at least a minimum amount of time for the beneficiary. Regardless of when the annuitant dies the beneficiary will receive the benefit payments for a minimum number of years.

As you can see, due to the complexity of annuity contracts it may be in your best interest to speak with a licensed independent agent to help assess your needs and find you the best possible annuity contract for your situation.

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Insurance terms, definitions and explanations are intended for informational purposes only and do not in any way replace or modify the definitions and information contained in individual insurance contracts, policies or declaration pages, which are controlling. Such terms and availability may vary by state and exclusions may apply.

Group Life Insurance: What You Need to Know for Your Workplace Benefits

Group Life Insurance and Your Workplace Benefits

Group Life Insurance (GLI) is usually offered through an employer to its employees as a benefit of employment. GLI is different from individual life insurance, which is written based on a single life, group life insurance is usually written for employee groups and is underwritten based on coverage for all or a large percentage of persons in the employee group.

Is there a cost to the employee to participate in the GLI policy?

Depends on how the employer runs their GLI plan. In a contributory plan the employee group shares the cost, and the insurance company has a minimum requirement that at least ~75% of all employees participate and the cost is paid by each respective employee through automatic payroll deductions based on the amount coverage selected. In a noncontributory plan the employees do not share in the cost, the insurance company requires that 100% of all employees in the group be eligible and the employer pays the full cost of the employees' GLI plan. In both plans, noncontributory and contributory, the plan must be available to approximately all full time actively working employees as the underwriting process looks at the entire employee group at the company to determine risk factors. The insurance company requires that a minimum amount or percentage of the employee group participate in the GLI plan to reduce adverse selection. The employee group must exist for an actual business or organizational purpose therefore an employee group cannot be formed just to obtain GLI. GLI has been formed by organizations such as labor unions, trade associations, fraternal organizations, and trustee groups (established by two or more parties) to name a few examples.

So what are the benefits of having a GLI policy?

There are several benefits to a GLI policy, with a GLI policy each employee does not have to provide evidence of insurability as the GLI policy is underwritten based on the entire employee group. Group life insurance is usually lower in cost to each employee vs individual life insurance policies due to lower costs in administrative, selling, and operational expenses at the insurance company providing the GLI policy. GLI policies are typically issued as annually renewable level term insurance providing a fixed amount of coverage throughout the term of the contract which typically allows each respective employee to adjust the amount of coverage each year during the open enrollment benefits period with their employer. In a GLI plan the employer is the policy owner, the employee receives a certificate of insurance showing coverage and names a beneficiary. GLI policies also allow for a conversion privilege, if an employee decides to leave the company the employee may convert their group life insurance coverage into an individual whole life policy without having to show proof of insurability during the conversion period.

Terms to Know

Term	Definition
Certificate of Insurance	certificate of insurance is a document issued by the insurance company used to verify the existence of insurance coverage.
Contributory Plan	is an employee benefit plan where each individual employee pays their benefit expense based on the amount of coverage selected.
Conversion Privilege	allows an insurance policy to be converted to a new policy that will continue the existing insurance coverage.
Noncontributory Plan	is an employee benefit plan where the employer pays the expense of the employees' benefits.

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Insurance terms, definitions and explanations are intended for informational purposes only and do not in any way replace or modify the definitions and information contained in individual insurance contracts, policies or declaration pages, which are controlling. Such terms and availability may vary by state and exclusions may apply.