Guaranteed Income for Life Using a SPIA
A Single Premium Immediate Annuity (SPIA) is a type of insurance contract that provides a guaranteed stream of income payments in exchange for a single lump-sum premium payment. The payments can be structured in a variety of ways, including a fixed amount, an inflation-adjusted amount, or a combination of both.
SPIAs are typically marketed as a way to provide a reliable source of income for retirees, or as a way to convert a large sum of money into a predictable stream of income. The main appeal of a SPIA is that it provides guaranteed income payments for life, regardless of market conditions or other factors.
However, it's important to note that once the premium payment is made, the money is no longer accessible and cannot be withdrawn or used for any other purpose. Contrary to what some financial pundits say, you do not necessarily "lose" your assets if you die before you recover your capital back. Payouts are based on the selected settlement option.
Some of the most common settlement options for SPIAs include:
Life Only: This option provides a guaranteed stream of income payments for the policyholder's lifetime, but no payments are made to the policyholder's beneficiaries after death. This settlement option pays the highest amount, however a better option may be Life Only with Period Certain (See #3 and #5 below). Some insurance companies allow you to combine settlement options in this manner.
Joint and Survivor: This option provides a guaranteed stream of income payments to both the policyholder and a designated beneficiary (usually a spouse) for their joint lifetimes. The payments will continue until the death of the last surviving policyholder.
Period Certain: This option provides a guaranteed stream of income payments for a specified period of time, such as 10, 15, or 20 years. If the policyholder dies before the end of the specified period, the remaining payments will be made to their beneficiaries.
Refund: This option provides a guaranteed stream of income payments for the policyholder's lifetime, and if the policyholder dies before receiving all of the payments, the remaining payments will be paid out to their beneficiaries as a death benefit.
Combined: This option allows policyholders to choose a combination of two or more settlement options, such as life only with a period certain or joint and survivor with a refund.