My mother is 81 and wants to purchase a fixed annuity. does the principle go directly to beneficiaries upon?
Answers:
The principle goes to the insurance company in exchange for the ins. co. paying her a monthly amount for either a period of time she chooses or for the extent of her lifetime. If it's a fixed period of time, say 5 years, she would probably get more than if it was to last for her lifetime. But when she dies that's it as far as payouts go. No money goes to the estate or to her heirs. However, there is a policy that is a cross between life insurance and annuity. It pays out less per month but there is a lump sum payout at the time of her death. No will is needed for this because she would name a beneficiary for the policy. The person she names is sent the money when the insurance company receives a copy of her death certificate.
Only if it's in Her will if not then the Town gets what she Owns otherwise you gotta go to Probate Court to fight for what is yours but I'd say monthly about $1500.00-$2000.00
If it is a fixed annuity, not an immediate annuity, I beleive the beneficiaries receive the lump sum if she passes away.
A fixed annuity is kind of like a bank CD, in that the insuarance company promises to pay a fixed amount. You may withdaw up to 10% of the value of the annuity per year without penalty. Fixed annuities are issued with a specified interest rate and specified time period. Once the time period is up, you can then pull all the principal out without penalty, or simply roll it into another annuity.
An immediate annuity is when you give up the principal in exchange for a payment plan. One option is to have payments until you die. Another option is to have payments for a fixed period, in which the benificiaries receive the remainder of the payments if the annuitant dies. Immediate annuities pay more than fixed annuities since you have to give up the money.
Anyway, please be sure to read the contract before signing any annuity. Perhaps the insurance company has a copy of the prospectus or contract online. Annuities are tricky, although they can be beneficial. Please read carefully.
Annuities are one of the most difficult investments for consumers, because they aren't standardized, and you have to look at the documentation for each annuity in order to figure out what it actually provides. What one company calls a "fixed annuity" may not have any provision for the beneficiaries or heirs. But another company may have a contract it calls a "fixed annuity" that does provide for some sort of payment to the beneficiaries or heirs (although it may not be the full amount of your mother's principal). The only way to be sure is to look at the paperwork for each annuity your mother is considering.
If you start reviewing annuity contracts, you will probably end up using every bottle of Pepto Bismol within a 10-mile radius. Lawyers disagree about what these things mean. People who aren't legally trained can suffer brain death from reading them.
If you want a simple alternative to an annuity, consider asking your mother to invest the money in 10-year U.S. Treasury notes (which are actually a ten-year bond). These investments are safe, since the U.S. Treasury stands behind them. (Remember that you have a credit risk problem with annuities--the insurance company might fail and be unable to pay them.)
The Treasury notes won't pay as much income as an annuity, but the principal will be preserved, and will be available to your mother's heirs. U.S. Treasury 10-year notes currently pay a little under 5%, or about $9,700 a year. An immediate annuity, at your mother's age, would probably pay much more than that. But what your mother could do is sell off some of the Treasury notes each year to cover expenses above the amount of interest income she gets. If she does sell some notes, her subsequent interest income will be less but most of the principal will remain (invested in the remaining notes), and will be available for either her future needs or for her heirs. This way, all of the money is used for your mother's living expenses and other needs, or it is distributed to her heirs. The insurance company doesn't get a cut.
The webpage listed below discusses this idea and other aspects of managing money in retirement.
O.K. Lots of answers. Lots of Loooooong answers. I'll keep it simple. If your mother takes an annuity and actually annuitizes it, she can select a payout option. She can take life only which pays the most money, but is the biggest gamble., Nothing goes to beneficiaries when she passes. Or, she can take a payout that refunds a portion to the beneficiary. Best bet...call the insurance company direct to find out the options. Secondly, does she need the income? If not, than you may want to look at other options. Call the insurance company, ask what their annuitization options are before she signs anything.
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