SPIA Structure: Life with Period Certain
When Single Premium Immediate Annuities were first introduced in this country over 200 years ago, the payment was guaranteed for life. If you died on day 2, there was no money left. That was how annuities worked, and to this day, many people think that is still how they work.
Countless times, I am told a version of “I don’t like annuities because when I die, that darn annuity company keeps the money.” These well-intended, yet uninformed annuity haters are referring to a “Life Only” Single Premium Immediate Annuity (SPIA). Yes, this Life Only structure is still available with an SPIA, but there are many other ways to structure the guaranteed payments to make sure that there is a guarantee of full replacement of premium in place, in case something happens early in the contract.
Have Your Cake (Life) and Eat It (Period Certain) Too
I love our country. We don’t settle for anything. We ask questions like “Why can’t we have it?” or “Why can’t you change that?” or “Why can’t I have it the way I want it?” This happened when people started to look at trying to customize Single Premium Immediate Annuities (SPIAs). People loved the lifetime income guarantee and wanted to make sure that there was a definite time period that the income stream would be paid whether the annuitant was still alive or not. In the SPIA world, this is called “Life with Period Certain.”
“Life” Is Still the Focus
It’s important to make sure that the most important component of a “Life with Period Certain” SPIA structure is the “Life” part. Regardless of the Period Certain guarantee attached, “Life” means that the issuing annuity carrier is on the hook to pay regardless of how long the annuitant lives. The annuitant is the person, or persons, whose life expectancy the annuity payment is based on.
Let’s take a look at a few examples of structuring an SPIA “Life with Period Certain”:
Life & Five Year Certain
This SPIA structure guarantees a lifetime payment, regardless of how long you live. The 5 year certain part of the contract means that there will be a minimum of 5 years of payments. For example, if you died in year 2, there would be 3 more years of payments to whoever you listed as the beneficiary of the policy. If you lived for 6 years and then died, there would be no money left for the policy beneficiaries.
Life & 10 Year Certain
This SPIA structure guarantees a lifetime payment, regardless of how long you live. The 10 year certain part of the contract guarantees that there will be a minimum of 10 years of payments. If you passed away in year 4, there would be 6 more years of contractual payments to the listed beneficiaries on the policy. If you lived for 11 years, and then died, there would be no money distributed to the policy beneficiaries.
Life & 30 Year Certain
This SPIA structure guarantees a lifetime payment, regardless of how long you live. The 30 year certain part of the policy contractually guarantees that there will be a minimum of 30 years of payments. If you passed away in year 13, there would be 17 more years of payments that will go to the listed beneficiaries of the policy. If you lived for 31 years and then unfortunately died, there would be no money for the beneficiaries.
If you don’t believe that statement, ask them! Single Premium Immediate Annuities (SPIAs) allow you to structure the policy “Joint Life” to cover two lifetimes.
It’s also important to know that the longer the period certain, the lower the payment amount. A “Life with 5 Year Certain” will have a higher contractual payout than a “Life with 30 Year Certain” structure.
So you can have your cake (Life) and eat it (Period Certain) too with a Single Premium Immediate Annuity. Enjoy the lifetime income guarantee! But first, find out whether or not you need an annuity, or when is the best time to buy an annuity. Plus. you'll need to cover all the bases by learning how to determine the safety of the annuity carrier.