A life annuity is a new name for an old product, in which an insurance company, in exchange for one or more premium payments, contracts to make monthly payments for life to an annuitant.
We've explored issues surrounding the insurance companies that issue annuities and their agents, and we've examined the different ways annuities gain in value. We've also analyzed potentially troublesome elements of the annuity contract itself. Now we'll review the different types of settlement – that is, the different kinds of monthly income stream to which an annuity can be converted.
Annuitization – Converting a Lump Sum to a Guaranteed Monthly Income Stream
Annuities can be annuitized – converted to a guaranteed monthly income stream – at any point, without penalty, unless otherwise stated in the annuity contract, as long as they don't include tax-qualified funds. The amount of the monthly payment is based on the value of the annuity and the age of the annuitant. Two things to keep in mind:
