What Is Annuity Protection and How Does It Work?

What is annuity protection?

It comes down to one simple concept:

Risk transfer.

Life insurance companies issue annuities, and when you purchase one, you are transferring specific risks to the insurance company in exchange for contractual guarantees.

That's where the protection comes from.

Key Takeaways

• Annuity protection is based on contractual guarantees
• Annuities transfer specific risks to the issuing insurance company
• Protection typically falls into four categories: Principal Protection, Income for Life, Legacy, and Long-Term Care
• Lifetime income annuities protect against outliving your money
• MYGAs provide Principal Protection and guaranteed interest rates
• Some annuities can help support legacy and long-term care goals

The Four Types of Annuity Protection

Annuity protection can be explained using the acronym:

PILL

• P = Principal Protection
• I = Income for Life
• L = Legacy
• L = Long-Term Care

Those are the primary risks annuities are designed to solve.

Protection Against Outliving Your Money

One of the biggest retirement fears is running out of income.

Some call it longevity risk.

Most people call it something simpler:

Running out of money.

Lifetime income annuities can provide income for as long as you are alive.

Examples include:

• Single Premium Immediate Annuities (SPIAs)
• Deferred Income Annuities (DIAs)
• Qualified Longevity Annuity Contracts (QLACs)
• Income Riders

The goal is to create income you cannot outlive.

Principal Protection

Not everyone needs lifetime income.

Some people simply want to protect their money while earning a guaranteed rate.

That is where a Multi-Year Guarantee Annuity (MYGA) can fit.

MYGAs are often described as the annuity industry's version of a CD.

They provide:

• Principal Protection
• Guaranteed interest rates
• Tax-deferred growth
• No market risk

Legacy Protection

Annuities can also help with legacy planning.

For people who may not qualify for life insurance, annuities can provide a guaranteed way to pass assets to beneficiaries.

The goal is to preserve and transfer assets according to the terms of the contract.

That can be an important form of protection for families.

Long-Term Care Protection

Long-term care costs are a concern for many retirees.

Some annuities offer contractual provisions designed to address future long-term care needs.

These products are generally structured to provide benefits if qualifying care events occur.

As always, the contract language determines exactly how those benefits work.

Protection Comes From the Contract

This is the most important point.

Annuity protection does not come from:

• Market predictions
• Hypothetical returns
• Back-tested illustrations
• Bonuses

It comes from the contract.

The guarantees are written into the policy and backed by the claims-paying ability of the issuing insurance company.

Buy Annuities for What They Will Do

Annuities should be evaluated based on what they are contractually guaranteed to do.

Not what they might do.

Not what someone hopes they will do.

The guarantee is the reason the product exists.

That is where the protection comes from.

Where to Compare Annuity Guarantees

If you're looking for Principal Protection, lifetime income, legacy benefits, or long-term care solutions, you can compare options using our annuity calculators here:

https://www.stantheannuityman.com/annuity-calculator/

The Bottom Line

Annuity protection is the transfer of risk from you to the insurance company.

That protection generally falls into four categories:

• Principal Protection
• Income for Life
• Legacy
• Long-Term Care

The key is understanding exactly which risk you want to solve and choosing the annuity that provides the strongest contractual guarantee for that goal.

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