Annuities Part III: Payout Options and Annuity Expenses
 

Annuities Part III:
Payout Options and Annuity Expenses
 By: Suzanne Lako
The Henssler Financial Group Position Paper

The Henssler Financial Group Wealth ManagementThe first article in this series discussed annuities, covering the basics and the different types of annuities. The second article dealt with types of annuities, including TSAs.

In this article we describe the various payout options available in most annuities and the various types of annuity expenses. Next week, we will conclude with an overview of the reasons The Henssler Financial Group does not recommend that investors purchase annuities.

Payout Options for Annuities

Whether you have an immediate or deferred annuity, the payout options are virtually the same. There are many different types of payout options an annuitant may choose. Some of the most common options are:

Straight Life Annuity
This type of payout is also known as a "life annuity." With this type of option, payouts are guaranteed for as long as the annuitant is living. The payments cease at the annuitant's death. This type of payout offers the largest monthly payout of any of the payout options.

Life Annuity with Period Certain
With this option, payments are guaranteed for at least a specific time period, 10-, 15-, or 20-years. Payments also will continue beyond the specified time period for as long as the annuitant lives. Essentially, the annuitant will receive the payments for life, and if death occurs before the specified period has elapsed, payments will continue to be paid out to a beneficiary until the stated period ends. Monthly benefits are lower than those with Straight Life.

Period Certain
With this option, payments are guaranteed for a specific time period only, and not for as long as an annuitant lives. If an annuitant dies before the stated period has elapsed, payments will continue to your beneficiary only through the stated period.

Cash Refund
Again, with this type of payout, payments are guaranteed for the annuitant's life, but if death of the annuitant occurs before all of the original principle purchase amount has been returned, the beneficiary will receive any remaining purchase amount in a lump-sum.

An Installment Refund is much like a cash refund except that in the event of the annuitant's death, the beneficiary will continue to receive payments until only the principle balance is depleted.

Joint and Survivor
This payout option allows for payments, through life, for more than one beneficiary in an annuity contract. Usually, beneficiaries are husband and wife. When one of the beneficiaries dies, payments will continue to go to the surviving beneficiary. Depending on the contract, payments can be the same amount, or a reduced amount for the survivor.

Annuity Expenses

If an annuity sounded like a viable option before, consider the expenses associated with annuities. Some of the more common expenses are listed as follows:

Annual Expense
This can be a percentage, usually over 2% vs. the average 1.4% on mutual funds, or a flat annual charge.

Contingent Deferred Sales Charge
If a purchase payment is liquidated, this penalty is applied as a percentage of the payment being liquidated. This charge usually decreases as the purchase payment ages.

Maintenance Fee
This is an annual fee that is usually deducted at the end of each year or upon surrender. Generally, it is assessed on sub-accounts only.

Tax Charges
 Depending on the state, a tax can be charged on purchase payments.

Transfer Fee
This can be charged when there is a remaining account value left subsequent to a transfer.

Surrender Charge
 This is a penalty, in percentage form, charged for making withdrawals from the cash value or mutual funds. These charges are generally reduced annually over a certain period of time until they are gone.

Mortality and Expense Risk Charge
This charge is to maintain the "insurance" part of the annuity contract. Usually it is assessed annually against each sub-account.

Administration Charge
This is a charge that can be assessed against each sub-account. This fee can be assessed daily.

Commissions to Brokers
Large commissions can be associated with annuities, so many agents push these types of investments.

For more information regarding this topic, please contact The Henssler Financial Group at 770-429-9166 or comments@henssler.com.

All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products and this overview is not to be construed as an offer to purchase any insurance products.