Difference Between Life Annuity And Retirement Annuity
All of us are pretty familiar with Life Annuity program
. In a Life Annuity program you make a contract with the life insurance company. For Life Annuity you make a series of prearranged payments to the insurance company for a long term prospect. It is generally based on covering the death of the annuitant. Another general name for Life Annuity is longevity insurance. The contract reaches termination at the death of the annuitant. The names of the people who are generally relatives of the annuitant are mentioned in the contract. The Life Annuity program pays them the required amount after death of the annuitant.
The contract is generally divided into accumulation and distribution phase. During the accumulation phase the customer deposits the required amount and during the distribution phase the insurance pays the requisite amount to the beneficiaries after the death of the annuitant. Another interesting way to arrange the pattern will be to sign upon a contract where the customer will deposit the cash till a prearranged time, generally retirement, after which he will receive payments from the Life Annuity program till his death. This is generally termed as the retirement plan. Money deposited on the variable annuity grows on the basis of tax deferral.
Life as we know is uncertain. There is every chance that the annuitant might die before the predicted time. This creates a problem called forfeiture. In this case the annuitants family will continue to receive the required amounts till a certain measurable time keeping in mind the risk factor. After the risk period has been passed, the amount received by the annuitants family will gradually decrease in the
Life Annuity program.
There are also Impaired Annuity Payments where say if the annuitant has been hit by a severe medical problem and his life is is serious jeopardy. In that case we cannot expect that he can continue making the usual payments as quite naturally he will not be able to. When confirmed medically, the annuitant in this case will keep on receiving his annuities.
Retirement Annuity program or retirement program plan as we call it is an annuity plan where the customer gets a certain fixed amount after his retirement .Retirement Annuity is basically an extension of the Life Annuity program. Section 226 contracts cover the entire Retirement Annuity program. In this case, the annuitant cannot transfer the amount any other beneficiary. It is extremely user specific.
An Individual Retirement Annuity is very similar to Individual Retirement Account (IRA) only that the purchase of an annuity contract depends on a number of conditions. The issuing of these annuities is made on the owner's name and the benefits are only given to the owner or the survival owner's beneficiary. Moreover, the owner is not allowed to transfer the balance to others. The accounts may allow flexible premiums. There are also traditional IRAs for the usual tax payers and they benefit from the usual total compensation. There are also Roth IRAs which is very similar to a traditional Ira however these are not tax deductible by any means.
by: Brad Lassyy
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