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Single Premium Immediate Annuity Death Benefit (SPIA)

Stan Haithcock
July 18, 2022
Single Premium Immediate Annuity Death Benefit (SPIA)

Today's topic is about Single Premium Immediate Annuity death benefits. The death benefits of an immediate annuity. There’s a lot of misinformation out there, as you can only imagine because people are... I read something the other day. It was from a really smart person. It said, "Well, you need to be careful when buying an immediate annuity because when you die, the money goes poof. The money goes away." Single Premium Immediate Annuity death benefits, you can customize that structure. It doesn't have to mean that all your money goes poof when your Learjet jet hits the mountain. It doesn't have to be that way unless you want way.

The History

So let's talk about the history of Single Premium Immediate Annuities and the death benefits back in the day when they were first put on the planet. And that time was the Roman times. Single Premium Immediate Annuities were put in place during the Roman times for the dutiful Roman soldiers and their families as a pension payment because they've been laying it on the line for the empire. When the Roman soldier died and the family died, the money went away. In this country, for the longest time, that was pretty much how it was sold. Life only means that when you die, the money goes poof. Unfortunately, for many people, that's the only way an immediate annuity can be structured from a death benefit standpoint.

Life Only

Meaning there is no death benefit. Life only is the highest payment. So let's just say you made a life-only payment on yourself, and you died. You're going to get the highest contractual guaranteed income payment. But when you die, money goes poof. If it's joint life only, when you die, the income continues uninterrupted and unchanged for your spouse. But when they die, money goes poof. That's life only and joint life only. And in both of those cases, there's no death benefit for the beneficiaries or the policy. There are no beneficiaries. It's just who the income is going to. In the annuity world, they call that the Annuitant. Life only is going to provide the highest contractual guarantee for you. Joint life will only provide the highest contractual guarantee payment for you and your married partner. But you don't have to do it like that.

They Won't Touch a Penny

You don't have to forfeit the death benefit from a Single Premium Immediate Annuity. You can customize that structure so that the evil annuity company will not keep a penny, even though they're on the hook to pay for the rest of your life as long as you breathe. So with the Single Premium Immediate Annuity payout, which can start as soon as 30 days from when the policy's issued up to one year, that's your call on how you want that. Just remember, the older you are, the higher the payment. The primary pricing mechanism is your life expectancy or life expectancies of joint when you make the payment. But the income stream from a Single Premium Immediate Annuity is a combination of return of principal plus interest. So how does that play into the death benefit? Remember, Single Premium Immediate Annuities are customizable in this case.

So let's just say you said, "Okay, I'm going to do a life with a cash refund." What does that mean? It will be on you in life as long as you breathe. They're going to pay, and that could be, if you lived 150, they're going to pay. But when you die, whatever's left in the account, remember to return a principal plus interest; whatever’s left in the account is the combination that you're getting lifetime income. Whatever's left when you die goes cash refund lump sum to the beneficiaries. If you wanted to do life with an installment refund, that death benefit would be, when you die, whatever money's left in the account goes in the payment form, the same payment form until the money's exhausted. So when it comes to the death benefit, it comes down to the customization of the structure. Just remember, you're getting your money back with interest. You're drawing down on that asset and that Single Premium Immediate Annuity amount you put in with the carrier.

Benefit Proposition

But remember this, even if you draw it down to zero, listen closely; the annuity company is on the hook to pay. That's the benefit proposition. And I always say, "There's no ROI until you die," that's what I mean. You can't say, "Well, my investments can beat an immediate annuity." I hope so because that's an apples and oranges comparison. A Single Premium Immediate Annuity is a pension payment. Now from a death benefit standpoint, you can structure it so that there is a death benefit in case you die early in the contract. Single Premium Immediate Annuities are contractual guarantees to pay for as long as you are breathing, or if with your spouse or partner, if you set it up joint, as long as they are breathing.

Remember, I just talked about cash refund, installment refund, Life with cash refund, joint life with a cash refund or life with installment refund, or joint life with installment refund. You can also do life with a period certain or joint life with a period certain. What does that mean? You can say, "Okay, I want life and 20 years, certain." That means it will pay you for as long as you breathe, regardless of how long that is. Or a minimum of 20 years. So life in 20 means that if you died in year 11, there are nine more years of payments for the list of beneficiaries. If you died in year 17, there are three more years of payments for the list of beneficiaries. If you died in your 21... YeaIt's a backstop if you die early in the policy, and you could do any form of the period certain. Life with five years certain, seven years certain, and 10, 15, 20, 30. Just remember this, and this is logical if you think about it. The higher the period certain attached, the lower the payment. So a life with a five-year period certain will be a higher payment than life with 25 years certain. So you get to customize that backstop but understand as long as you are breathing, the annuity companies are on the hook to pay.

SPIA Customization

Let's talk about one type of Single Premium Immediate Annuity death benefit. Many pensions are offered out there when the company says, "Okay, and if you have a pension at the company that you work for, good for you because not many companies offer those anymore." But many of them will say, "Okay, you can add your spouse; it’s going to pay you, and then when you die, your spouse will get 50% of that payment." So, in essence, it's joint and 50% survivor. Now you can run immediate annuity quotes like that. And you know, those are the customization quotes that I will help you with. If you say, "You know what, I want, joint life and 75% survivor, a joint life and 50% survivor," we can do that. So, you’ll get a higher payout as long as you breathe.

But when you die, if you have 75% survivor, your spouse or partner will get 75% of that amount you had been getting when you were breathing. Once again, the customization of the quotes comes down to you and me talking about your specific situation. And everyone's situation is different. You might have everything planned out on a spreadsheet that makes total sense. And in joint life with 50% survivor makes sense because you have other money kicking in. The bottom line is I'll run those quotes for you all day long until you find the contractual guarantee that fits your specific situation. And that makes total sense to you. Hey, I'm not a mathematician, but I do know this. One out of one of us is going to die. You can go to the bank with that one. So when it comes to death benefits and Single Premium Immediate Annuities, just remember it's customizable.

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.

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