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Single Premium Immediate Annuity Death Benefit (SPIA)

Stan Haithcock
December 24, 2023
Single Premium Immediate Annuity Death Benefit (SPIA)

Hi, Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today's topic is Single Premium Immediate Annuity death benefits, the death benefits of an Immediate Annuity. I read something the other day, and it was from a brilliant 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." I'm thinking, "Oh my gosh, this person's educated, and they have a syndicated show, and they're writing that? Oh, my goodness." For Single Premium Immediate Annuity death benefits, you can customize that structure. The money doesn't have to go poof when your Learjet hits the mountain. Unless you want it that way, it doesn't have to be that way. In today's blog, we're going to talk all about this.

‌Brief History

‌Let's talk about the history of Single Premium Immediate Annuities and the death benefits back when they were first put on the planet. And that time was the Roman times. Single Premium Immediate Annuities were put in place in 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. Now, back then, the way that I understand it, and I've done the research, is that when the Roman soldier died, and then the family died, the money went away and went poof. For the longest time in this country, that was how it was sold.

‌Life Only and Joint Life Only

‌Life only, meaning that when you died, money went poof. Unfortunately, many people think that's the only way an immediate annuity can be structured from a death benefit standpoint, meaning there is no death benefit; life only is the highest payment.

‌So, let's say you did a life only payment on yourself and you died. You'll get the highest contractual guaranteed income payment, but when you die, money goes poof. If it's joint life only, when you die, your spouse's income continues uninterrupted and unchanged. 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 of the policy. There are no beneficiaries; it's just who the income is going to. In the annuity world, they call that the annuitant.

‌Just put that in the back of your head. Life only is going to provide the highest contractual guarantee for you. Joint life only is going to provide the highest contractual guaranteed payment for you and your spousal partner. But you don't have to do it like that. 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 are breathing.

‌SPIAs Are Customizable

‌With the Single Premium Immediate Annuity payouts, and by the way, that can start as soon as 30 days from when the policy is 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 at the time you take the payment. However, 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, annuities, Single Premium Immediate Annuities, in this case, are customizable.

‌Let's say you said, "Okay, I'm going to do a life with cash refund." What does that mean? It's going to be on your life. As long as you are breathing, they're going to pay. And that could be if you lived to 150, they'll pay. But when you die, whatever's left in the account, remember, return of principal plus interest 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 installment refund, that death benefit would be when you die, whatever money's left in the account goes into the same payment form until the money's exhausted.

‌When it comes to 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. But remember this: even if you draw it down to zero, listen closely; the annuity company is on the hook to pay. And we have zillions; that's maybe an overstatement, but for many clients, the account's at zero, and the annuity company continues to pay. That's the benefit proposition.

‌And when 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. From a death benefit standpoint, you can structure it so that there is a death benefit in case you die early in the contract.

‌By the way, I'm wearing a shirt that reads, I heart contractual guarantees. What does that mean? That means Single Premium Immediate Annuities or contractual guarantees will 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.

‌Life With a Period Certain

‌The third type of Single Premium Immediate Annuity death benefit, and remember I just talked about cash refund, installment refund, life with cash refund, joint life with 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 a 20-year period certain." That means it will pay you for as long as you are breathing, 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's three more years of payments for the list of beneficiaries. If you died in year 21, yeah, you're right; there are no payments to the beneficiaries.

‌What I call a period certain, life with a period certain, that's like a backstop. If you've played Little League baseball or softball, there's a backstop. It's a backstop if you die early in the policy. And you could do any form of period certain. Life with five years certain, life with seven years certain, life with 10, 15, 20, 30. Just remember this, which 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 a life with a 25-year period. You get to customize that backstop but understand that as long as you are breathing, the annuity company is on the hook to pay.

‌It's Customizable

‌Let's discuss one more type of Single Premium Immediate Annuity death benefit. Now, a lot of pensions that are offered out there, and if you have a pension at the company you work for, good for you because not many companies offer those anymore. But many companies will say, "Okay, you can add your spouse. It's going to pay you, and then when you die, your spouse is going to get 50% of that payment." In essence, it's joint and 50% survivor.

‌Now, you can run Immediate Annuity quotes like that, which are the customization quotes I will help you with. Then you can book a call with us. And when you're on the phone and say, "You know what, I want joint life and 75% survivor, joint life and 50% survivor.", we can do that. You're going to get a higher payout, as long as you are breathing. But when you die, if you have 75% survivor, then your spouse or partner is going to get 75% of that amount that you had been getting when you were breathing.

‌Once again, the customization of the quotes comes down to you and us talking about your specific situation. 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, it makes sense because you have other money kicking in. The bottom line is we'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.

‌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. It is true. So, when it comes to death benefits and Single Premium Immediate Annuities, remember that they're customizable. If you hate all human beings and you're a total misanthrope, life only is the best for you. But if you want to leave some money for your family, if you want to make sure that that hard-earned money that goes into the Immediate Annuity, if you die early, goes to someone in the family, we can structure that for you.

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