Annuities are popular retirement planning tools that have the unique ability to provide income that cannot be outlived.
Once in their payout phase, annuities offer a stream of income payments that are based on the amount invested and the age and life expectancy of the person who will receive the payments. This person is called an annuitant.
A joint and survivor annuity is a type of annuity that is based on the lives of two annuitants rather than one. If one annuitant dies, then the surviving annuitant is entitled to the same benefits for the rest of their life.
There are a couple of different types of joint and survivor annuities, which we will examine more closely later on.
Annuities: Deferred vs. Immediate
Annuities are long-term insurance contracts intended for retirement planning. They are issued by life insurance companies, and there are two basic types of annuities: deferred and fixed.
Deferred annuities grow via fixed or market-linked interest for years – or even decades – before paying out a stream of income payments. When income begins, this is known as annuitizing the contract.
Immediate annuities, as the name suggests, have an income stream that begins immediately upon purchase. Interest earnings are factored into these income payments.
Joint and survivor payouts are an option for annuitized deferred annuities as well as immediate annuities.
Joint and Survivor Annuity with Life Only
Life only payouts are the most simple annuity options. In a joint and survivor annuity with life only, payments are made to the annuitants for the rest of their lives. Neither annuitant can outlive the income, but once both annuitants are deceased, there is no death benefit that will be paid to a beneficiary.
Joint and Survivor Annuity with Certain Period
A joint and survivor annuity with certain period takes the life only option and adds another layer of guarantee.
Before income payments begin, the owner of the annuity selects a period of years – commonly between 5 and 30 – for which the income will be guaranteed even if both annuitants die before the end of the period selected. If bother annuitants die before the end of the period, income payments will be made to the annuity’s beneficiary until the end of the period.
All payments stop at the end of all annuitants’ lives or the end of the period, whichever is later.
Joint and Survivor Annuity with Refund
A joint and survivor annuity with refund takes the life only option and adds a guarantee that the annuitants or their heirs will receive back at least the amount invested in the annuity.
If both annuitants die before receiving in income payments at least the amount that was invested, the beneficiary will receive the difference between the amount received and the amount invested in one of two forms: a cash refund or an installment refund.
In a joint and survivor annuity with cash refund, the amount due to the beneficiary is paid in one lump sum.
In a joint and survivor annuity with installment refund, income payments will continue being paid periodically, to the beneficiary, until the total amount paid out to annuitants and beneficiary equals the amount of the original investment.