When an annuity is set up to provide lifetime income, life expectancy is one of the primary factors used to determine the payment.

For a single-life annuity, the insurance company bases the lifetime income on the life expectancy of that individual.

For a joint-life annuity covering two people, both lives are covered, so the insurance company has to account for how long payments could potentially continue.

That's why understanding whose life is covered by the contract matters when comparing lifetime income options.

Key Takeaways

• Single-life annuity payments are based on one person's life expectancy.
• Joint-life annuities cover two lives and generally provide lower initial payments than comparable single-life payouts.
• With a married couple, the longer life expectancy can significantly affect the joint-life payout.
• Naming your spouse as a beneficiary is not the same as establishing joint lifetime income.
• Lifetime annuity payments can be structured with contractual protections for beneficiaries.

Life Expectancy Drives Lifetime Income

Lifetime income annuities are designed to transfer longevity risk to an insurance company.

In simple terms, you're transferring the financial risk of living longer than expected.

The insurance company agrees to continue making the contractual lifetime payment even if you've received back your original premium and the account value has been depleted.

That's the core value proposition of lifetime income.

Because the insurer doesn't know exactly how long you'll live, life expectancy becomes an important part of determining the payment.

How a Single-Life Annuity Works

With a single-life annuity, the lifetime payment is based on one person's life.

If you're the person receiving the lifetime income, the insurance company considers your age and life expectancy when determining the payout.

Generally, the older you are when lifetime payments begin, the higher the initial payout can be because your remaining statistical life expectancy is shorter.

This is similar to the basic concept behind delaying Social Security: age and expected payment duration affect the amount of lifetime income you receive.

How a Joint-Life Annuity Works

A joint-life annuity is designed to provide lifetime income across two lives.

A common example is a married couple who wants the income to continue as long as either spouse is alive.

Because the insurance company may have to make payments for a longer period, joint-life income is generally lower than a comparable single-life payment.

The trade-off is important: you're accepting a lower initial payment in exchange for covering two lives instead of one.

Whose Life Expectancy Matters With a Married Couple?

With joint lifetime income, the longer expected payout period becomes important.

For example, if a husband and wife establish joint lifetime income and the wife has the longer projected life expectancy, the insurance company has to account for the possibility of continuing payments throughout her lifetime.

Women also tend to have longer statistical life expectancies than men, which can affect joint-life pricing.

Age differences matter as well. If one spouse is significantly younger, the insurance company must account for the possibility that payments could continue for that younger spouse for many additional years.

Single Life Usually Pays More Than Joint Life

If everything else is equal, a single-life annuity will generally provide a higher initial lifetime payment than a joint-life annuity.

Why?

The insurance company is guaranteeing payments over only one life.

With joint life, the insurer may have to continue paying until the second person dies.

That additional potential payment period is reflected in the amount of income offered.

A Beneficiary Isn't the Same as a Joint Annuitant

This is one of the most important distinctions to understand.

Suppose a husband establishes a single-life annuity and names his wife as the beneficiary.

That does not necessarily mean his wife will continue receiving his lifetime income payment after he dies.

For lifetime income to continue based on both lives, the contract generally needs to be established with the spouse as part of the joint-life income guarantee.

A beneficiary designation serves a different purpose.

Depending on the payout structure, the beneficiary may receive any remaining contractual death benefit or refund after the annuitant dies, but that isn't the same thing as continuing a joint lifetime payment.

What Does "Annuitant" Mean?

The terminology can make annuities sound more complicated than they are.

For lifetime income purposes, the annuitant is the person whose life is used in determining the contractual income benefit.

With joint lifetime income, two lives are covered.

Understanding who is actually covered by the lifetime guarantee is critical before signing the contract.

Don't assume that being listed as a beneficiary automatically provides the same protection.

What Happens If You Die Shortly After Buying the Annuity?

A common fear is that you'll purchase a lifetime income annuity, die shortly afterward, and the insurance company will simply keep all the remaining money.

Lifetime annuities don't necessarily have to be structured that way.

Different payout options can provide protections for beneficiaries.

For example, certain structures can include a cash refund provision so that if you die before receiving your original premium back through income payments, the remaining contractual amount can pass to your beneficiaries.

The payout may be lower when additional guarantees are included, but you can structure the contract around your specific goals.

Why Longevity Risk Matters

The reason people purchase lifetime income annuities isn't because they know exactly how long they'll live.

It's because they don't.

If you live significantly longer than expected, the insurance company remains responsible for the contractual lifetime payment.

That's the risk you're transferring.

The longer you live, the more valuable that guarantee can become.

Life Expectancy Can Change Over Time

Life expectancy tables aren't permanent.

Medical advances and improvements in longevity can eventually affect how insurance companies price lifetime income guarantees.

If insurers expect future retirees to live longer, they have to account for potentially making payments for a longer period.

That can influence the lifetime income available from future contracts.

Compare the Actual Income Guarantees

When evaluating lifetime income, compare the contractual payouts available for your specific situation.

Important factors include:

• your age
• your spouse's age, if applicable
• when income begins
• single-life versus joint-life income
• payout structure
• beneficiary protections

Small changes in how the contract is structured can change the guaranteed income amount.

Where to Compare Lifetime Annuity Income

If you want to see how age, income start date, and single-life versus joint-life options affect your payout, use our annuity calculators to compare current contractual income guarantees from multiple insurance companies.

Running the numbers for your actual situation is more useful than relying on general payout averages.

The Bottom Line

When an annuity is written for lifetime income, the insurance company considers the life expectancy of the person or people covered by the guarantee.

For single-life income, one life determines the payout. For joint-life income, the insurer must account for payments potentially continuing over two lives, which typically results in a lower initial payment.

Most importantly, don't confuse a beneficiary with someone covered by a joint-life guarantee. If you want income to continue for a spouse after you die, make sure the annuity is structured to contractually cover both lives.

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