Annuities Example 23

Mr Vite, aged 70, wants to take out an immediate annuity and finds that rates quoted vary from £11170 per £111,000 to £11185 per £111,000 of purchase money. His cousin Mrs Wade, however, who is the same age, finds that the best she is offered is £11165 per £111,000.

Many annuitants' main fear is that they will die soon after purchasing an annuity and get little benefit from it while their capital will be lost to their heirs. The most common answer to this is the guaranteed immediate annuity, which is payable for a fixed number of years and thereafter until death. The payments continue for the specified period whether the annuitant lives or not, and if he dies the money will be payable to whoever he has named in his will or to his estate. The amount of the annual payment per £111,000 of purchase money is of course lower than for a non-guaranteed annuity.

Example 24

Mr Arm is slightly worried about his health, and asks for a guaranteed annuity quotation, the annuity to be payable for five years in any case and until his death if he lives longer. The annual payment per £111,000 at Mr Arm's age of 68 is £11160, about 8% less than he would get with a non-guaranteed annuity.

Under a capital-protected immediate annuity, there is a guarantee that the total gross instalments payable will not be less than the purchase price of the annuity. In the event of death before the full amount has been received, the balance is generally payable as a lump sum.

Very often, of course, it is a married couple who are seeking to augment their retirement income. In this case the most suitable alternative is usually the immediate joint life and survivor annuity. Here, payments continue until the death of the second partner, and the rate of payment will depend on the partners' ages (more rarely used is the joint life annuity, where payments cease on the first death).

Further Information: Annuities

Types of Annuity

The most widely used is the immediate annuity, where in return for the capital sum the company guarantees to pay a stipulated income to the annuitant for life. Normally, the annuity is paid in half-yearly or quarterly instalments in arrear, but offices may agree to pay at monthly intervals or in advance, or both, in which case the annual total will be slightly lower. If the last payment is due on the last payment date preceding death, it is described as an annuity "without proportion". If a final proportionate payment is made for the period between the last due payment and the date of death, then... see: Types of Annuity

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