retirement

Who gets my annuity money if I die early?

Jack HungelmannDear Insurance Adviser,
I'm 70 years old. Let's say I buy an annuity, electing to defer payments for five years, and then begin receiving monthly payments. Then, three years after that, I die. What happens to the unpaid balance of my investment?
-- Older and Wiser

Dear OAW,
Annuities are the exact opposite of life insurance. Life insurance pays benefits to those who die too early. Annuities pay benefits to those who live too long. With life insurance, people who die (or at least their beneficiaries) collect from the premiums of people who are still living. With annuities, people who outlive their annuity investment continue to collect a payout from those who did not. In its purest form, an annuity pays a monthly stipend for as long as you live, whether it be two weeks or 25 years.

If you buy an annuity and die three years later, the balance of your investment gets redistributed to those who live beyond their life expectancy. If that's a little too distasteful to you -- to lose the rest of your investment after only three years of collecting monthly checks -- and if you are willing to take a slightly reduced amount, insurance companies will guarantee to pay you or your beneficiary that reduced amount for at least 10 years.

If you're married, there are options that will pay you and your spouse for as long as you both live.

Every insurance company offering annuities offers countless variations of payouts that will not end upon your death. Talk to your financial adviser to get a recommendation.

Finally, make sure the company making the annuity payments is solid financially, with an A.M. Best Co. rating of "excellent" -- A or better.

Live long and prosper!

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