How Not To Pull Your Family Apart

In a sense, an annuity is like reverse life insurance. Instead of insuring against death, annuities are designed to protect against longevity risk, meaning the risk you will outlive your income and savings.

Basically, an annuity is a contract between you and an insurance company or similar financial institution under which, in exchange for a lump sum or ongoing premium payments, the insurance company agrees to make regular payments for either the rest of your life or for a predetermined number of years.

The CPT decided to meet, once again, at Nicole’s home. After chatting about the latest news on Erik’s children, Nicole kicks off the meeting. “My topic is annuities. One of the biggest attractions of annuities is that the growth earned on the single sum or ongoing payments isn’t immediately taxable. This feature, called deferred growth, means you don’t owe any taxes on an annuity’s earnings until you actually receive the money. The period in which you start receiving money back from the insurance company is known as the annuitization phase. When an insured takes an annuity withdrawal to cover costs associated with long-term care needs, he or she deals with the associated ordinary income, gains-first tax treatment and pays taxes accordingly. Adding an extended or long-term care rider to an annuity can provide funds for long-term care expenses without exacerbating the tax burden. Without a long-term care rider, normally the annuity pays one monthly benefit amount. But if you ever need long-term care, the annuity with the rider may apply a multiplier resulting in a higher monthly benefit.

There are annuity expenses and fees, including mortality and administrative fees. These charges pay for any insurance guarantees that are automatically included in the annuity and the selling and administrative expenses of the contract.”