Life-annuity provision offers financial security to many in their much-deserved retirement. The appeal of a policy that will pay out a regular income after your working life has come to an end is understandably attractive to many. Yet the distinction between joint and single-life annuities is not as straightforward as might be imagined. Knowing the difference between the two is vitally important if you are considering the option of a life annuity.
Whether single or joint, an initial decision to make is how payments to the provider will be made. Some might opt for a single lump-sum payment whereas others may prefer to pay money on a regular basis in the build-up to retirement. Single-life policies provide a regular income to a sole beneficiary as the word ‘single’ refers to the annuity being in one name only. For couples where neither partner earns significantly more than the other, both would benefit from single-life annuities. If there is a clear breadwinner, a single-life policy may not be the best option as any pay-outs will end immediately with the policy holder’s death. This can result in widows or widowers struggling for money if they were previously reliant on annuity payments.
This is why many people will choose a joint-life annuity in order to avoid either partner struggling financially. Naming a partner on such a policy means that they will receive a pre-determined percentage of the annuity if the policy holder passes away. The peace of mind this provides is understandably welcome for couples reliant on one income. However, the nature of joint-life cover means lower monthly pay-outs in addition to other stipulations.
With joint-life policies, rates and eventual outcomes are determined by the health of your partner and also their age, particularly in comparison to you. Statistics suggest that men are predominantly, though not always, the primary earners in a household. They also show that in the majority of partnerships the female is younger than her partner. Both of these things have had an impact on how life-annuity providers calculate the cost of policies on a case-by-case basis.
In cases where the secondary partner appears to be in better health and is younger than the initial beneficiary, the costs of taking out an annuity can be higher. It is also worth noting that in cases such as these, the rates offered are generally lower as companies will predict that they will be paying out over a longer period of time. Conversely, if there is little disparity in predicted lifespans, a joint annuity should not come at a much higher cost.
Although this outlines the differences between joint and single-life policies, deciding which is right for you requires a detailed look at your finances. Everyone is different, with a varying set of circumstances and a range of financial needs, but being informed is the first step to making the right retirement choices.
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