Straight Life Annuity

Thinking about your financial status post retirement is essential when you are in the prime of your life. Savings are essential part of retirement planning. If you have some well invested savings tucked away, the retirement years are bound to be more comfortable. There are various ways in which you can make arrangements for the years after retirement. One of the most sought after options is straight life annuity.

How do annuities work? An annuity is a kind of financial investment that hands out periodic returns till a certain pre-decided point of time, after an annuitant has paid for it in full through one time lump-sum payment or through installments. An annuity may start paying the annuitant back immediately or the payment may be deferred to a date in the future.

The first type is called an immediate annuity and the second is a deferred annuity. There are many types of annuities including a fixed annuity and variable annuity, which have a fixed and variable interest rate respectively.

What is Straight Life Annuity?

It is one of the most sought after insurance products offered in USA. A straight life annuity can be bought by a lump-sum payment or through a series of installments. The main feature of straight life annuities that attracts many to it, is the fact that payments made against investment continue till the death of the annuitant.

The only catch remains that the payments cannot continue to any beneficiary after the death of the person who has bought the annuity in his name, that is the annuitant. Most people opt for a lump-sum payment option.

The insurance companies are committed to keep paying a fixed amount of payment throughout the entire life of that person. When you opt for an immediate annuity, the payments start immediately. If you go for deferred payments, they begin around the normal retirement age of an individual which is around 60.

Pros and Cons

Now let us consider the advantages and disadvantages of opting for straight life annuities. One of the prime benefits is of course, a guaranteed income source is available to you for a lifetime, which is quite a comforting thought. Some insurance companies offer a clause for inflation correction, which will adjust your payments size, according to the standard of living costs in the future. This provides further security and ensures that inflation doesn't eat into your returns.

One of the major cons is the discontinuity of payment to a beneficiary after the annuitant's death. This is quite a deal spoiler for many people. If there are no dependents, then this annuity type is the best choice, but not otherwise.

One of the major problems with straight life annuity remains that there is no way that the annuitants dependents can be paid after his or her death. Ergo, such a plan is best suited for single people or for those who have made other financial arrangements for their dependents. Before signing up and buying one, make sure that you study all the terms and conditions in detail.