Life With Installment Refund vs. Life With Cash Refund
Today we are going to compare life with installment refunds versus cash refunds. I got a call the other day, a call I receive a lot with people saying, "Hey, I do not want the annuity company to keep any of the money. I want a lifetime income stream, but I want to make sure that the annuity company doesn't keep a penny." And that's a big concern because there are many misconceptions out there that, when you die, the annuity company keeps the money. That's the only choice you have. It's not. That choice is called life only. It's the highest contractual guarantee you can receive with an Immediate Annuity, Deferred Income Annuity, or Qualified Longevity Annuity Contract. But most people don't choose that. Most people choose either life with installment refund or life with cash refund because they want to make sure that 100% of any unused money goes to the listed beneficiaries on the policy and the evil, evil annuity company doesn't keep a penny.
Hey, I get that. That's what the Annuity Man superhero is here to protect, right? That's it. We're protecting your money and transferring risk to the annuity companies to pay you for the rest of your life.
Which Is Better?
Here we are, installment refund versus cash refund. And understand that it can be single life or joint life, and you can set it up either way. What does that mean? Single life, it's on your life, so it's going to be a higher payment than joint life because it's on two lives. Annuity companies don't give anything away; remember that. But you could set it up single life with installment refund, single life with cash refund, joint life with installment refund, or joint life with cash refund. So, what's the difference? What's better? There is no better. In the annuity world, if any agent or advisor says, "I have the best annuity. This annuity is the best one for you." Wrong. Because that's the best annuity for them. There's no best annuity. People always ask me, "What's the best carrier? What's the best annuity?" It's the one that provides you, yes, you sitting there, the highest contractual guarantee based on your specific situation. That's the best one. Now, yes, we do look at the Claims Paying Ability of the carrier, the ratings, and all that stuff, but buying annuities is like buying a plane ticket. You're looking for the best deal out there, period.
Let's look at these. Installment refund versus cash refund, both of these falls under what I call period certain. They're looking at your life expectancy at the time you take the payment, and they're basing that lifetime income stream on there. They're also basing the installment refund and the cash refund. So, let's look at it just from a raw standpoint. Let's say it's paying you for life, and it's paying you $3,000 a month. And when you die, let's say there's $300,000 left in the account. In a cash refund, you're going to get the lump sum. Your beneficiaries are going to get the lump sum. If you have three beneficiaries and split it evenly, they will get $100k each, right? Right. With installment refunds, instead of them getting the lump sum, they will get the payments. They meaning the beneficiaries. They're going to get the $3,000 per month until that $300,000 is exhausted.
Which Quotes Is Higher?
Now, under the scenario, however, which quote is higher? Installment refund or cash refund? Think logically for a second. An annuity company holds onto the money, versus an annuity company has to come up with a lump sum. Coming up with a lump sum will create a lower lifetime income guarantee because they got to come up with that lump sum as compared to an installment refund. Under this example, let's say the cash refund is $3,000 a month, and the installment refund is $3,200 a month. And that's just a visual for you to understand. You're getting more monthly income because you're spreading out the death benefit payments when you die early in the contract instead of the insurance company coming up with a lump sum. Does that make sense? Nod your head. Because you're still going to get paid for the rest of your life, regardless of how long you live. Which begs one more question. "Hey, Stan, what happens when I live forever? What happens to this part and this part? The installment refund and cash refund?"
Living Past Life Expectancy
If you live way past your life expectancy, then this analysis doesn't come into play. Why? Because when you live past your life expectancy, let's say on both examples, your life expectancy was 17 years. And you've lived way past the 17 years. Well, no money will be left for the beneficiaries, but the annuity company's still on the hook to pay, which is the benefit proposition of a lifetime income stream. Transfer of risk, no ROI until you die. So, in essence, the account's at zero. There's zero in your Single Premium Immediate Annuity count or Deferred Income Annuity account. What happens? The annuity company's on the hook to keep paying. I have thousands of clients where their account's at zero, they've outlived their life expectancy, and they're still getting paid that monthly guarantee. That's a good deal, right?
That's when you say to yourself, "Hey, there's no ROI until I die." There's no return on investment calculation until you die because who knows? And that's a good deal when it gets to zero because with any annuity payment, regardless of the type, even these types, the payment is a combination of return of principal plus interest. That's what it is. When we get to zero in your account, you say, "Well, I don't want to get to zero." Yeah, you do. And I'm going to tell you why you do because when we're at zero, you are now in the annuity company's pockets. You're in their pocket, and that's where you want to be. That's the risk transfer. You're transferring the risk for them to pay you for the rest of your life, and now the money's coming out of their pocket instead of return of principal plus interest until it gets to zero.
By the way, you should check out this video I did on Single Premium Immediate Annuities, which I dig deep into that. And I'm doing these videos every single day, Monday through Friday, until the cows come home, as they say in the South. But as a brief synopsis, as The Annuity Man superhero, as the not, is preventing anarchy in the annuity world is what I'm doing, which is telling the brutal truth.
There's no good answer to which one's better, and it really comes down to how you want the beneficiaries to receive the proceeds upon your death if you do not outlive your life expectancy. There are no good answers, just bad sales pitches.
With that being said, go to our annuity calculators to get quotes. Please interact with us; we've got a great staff that's listening to you. Not trying to sell; just listening. I told someone another day, "My site, is where annuities are bought, not sold." I mean, truly, we're going to leave you alone, give you the best information possible, and then you can make your decision on your terms and on your timeframe. And your decision might be not to get an annuity, and that's okay once you fully understand them. The only thing we do is tell the brutal truth about annuities, provide the best contractual guaranteed quotes, quoting all carriers, and then we treat you like a professional. With that being said, I hope to see you on the next Stan The Annuity Man blog.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.