SPIA Structure: Life with Cash Refund

Your Beneficiaries can Immediately Upgrade to a Ferrari with a Lump Sum Payment from your SPIA with Cash Refund
Your Beneficiaries can Immediately Upgrade to a Ferrari with a Lump Sum Payment from your SPIA with Cash Refund. Fun Energetic Eclectic / Moment / Getty Images

The Romans had their problems, but they understood one thing when it came to their soldiers.  The way to reward them and their sacrificing families was to provide a lifetime income stream.  In essence, every Roman soldier and their family was given a Single Premium Immediate Annuity (aka: SPIA) type strategy as a guaranteed pension.  In this case, the Roman’s got it right.

A couple of hundred years ago in the United States, the same type of forethought, generosity, and reward for service occurred in the Presbyterian Church in Pennsylvania.

  Retiring ministers were provided a Single Premium Immediate Annuity (SPIA) type pension to take care of their income needs during retirement.  This was the start of annuity business in America and SPIAs were the only type of annuity sold until 1952.  Man, do I wish it was still 1952!

I Want it All, and I Want it Now!

The popular and iconic British rock group, Queen, coined this phrase in a popular song, but it can also be applied to how you can structure your SPIA payout.  Most people want to make sure that in addition to the lifetime income guarantee, they also receive any money left in the SPIA account, having it go to their family or estate after their death.  In other words, they do not want the annuity company to keep a penny of their hard earned money.  I’m assuming that you are nodding your head in agreement while reading this.

Structuring your SPIA policy “Life with Cash Refund” allows you to somewhat have your cake and eat it too.

  What I mean by that is setting up your SPIA in this fashion guarantees a lifetime income stream as long as you live….regardless of how long that is.  If you set it up “Joint Life with Cash Refund”, then the income guarantee covers a continual payment for the life of both spouses, with any remaining principal distributed to listed beneficiaries.

That’s the lifetime income guarantee that is unique to annuities.

Let’s look at the “Cash Refund” part of the “Life with Cash Refund” SPIA structure.  This means that when you die, whatever money is left in your SPIA account goes lump sum to whoever is listed as beneficiary(s) on the policy.  If it is set up joint life payout with a spouse, and you die, the income stream will continue uninterrupted and unchanged for their life.  When the second person dies, whatever dollar amount is left in the SPIA policy will go lump sum to the listed beneficiary(s).

“Life with Cash Refund” provides one of the highest contractual payment guarantees for life while assuring that 100% of the initial premium goes to you, your family, or your estate.

Payments on a Ferrari, or Paid in Full?

I always tell people that your beneficiaries are going to show up to your funeral services in a Ferrari regardless of your plans.  The only thing you can do is either set it up so that they are making payments, or throw caution to the wind and just let them pay cash for it.  Hey you’re dead!  What do you care?

This crass example describes the difference between a SPIA “Life with Installment Refund” and “Life with Cash Refund” structure.

  Both guarantee a lifetime income stream regardless of how long you live.  Both guarantee that any unused money in your SPIA account will go to your beneficiary(s), and the annuity company will not keep a penny.  The only difference is that “Installment Refund” means that your beneficiary(s) will receive payments until the money is fully exhausted, and “Cash Refund” assures the remaining money will be distributed in a lump sum.  Typically, “Life with Installment Refund” has a slightly higher guarantee than “Life with Cash Refund.”

There is a way to keep the annuity company from taking a penny from your coffers.  If you want a lifetime income guarantee and to retain any unused premium after death, my advice is to quote both structuring choices:  “Life with Installment Refund” and “Life with Cash Refund”.

  From there, you should be able to make an informed decision.

Still not sure where to start your research? Click here to learn the Annuity P.I.L.L. Strategy

Click here to read about Rated Single Premium Immediate Annuities

Click here to read about SPIA Structure with Life Only

 Click here to learn the 3 Biggest Annuity Buying Mistakes