What is Annuitization?
An annuitization is a payout option other than a lump sum payment. Some payout options guarantee an income for as long as the client lives, while other options spread the distribution out over the number of years that they choose. Guaranteed lifetime options include life income only, life income with a guaranteed number of payments, and joint life payments. Non-lifetime options include payments for a fixed number of years or payments of a specified amount. Clients may choose the form of distribution when they are ready to begin receiving payments.
Any annuity, by definition, can be annuitized, meaning that at some point during (or at the end of) the contract term it can be converted to an irrevocable series of payments for the rest of the annuitant’s (usually the owner) lifetime or for a specified term of years. Once annuitized, the contract value is no longer available to the owner as a lump sum – instead she/he has a promise of payments from the life insurance company. Immediate annuities can always be purchased, meaning one creates an immediate income stream. It is a common misconception that annuities must be annuitized in order to payout. Ninety nine percent of AnnuiSafe accounts sit in deferral as opposed to being converted to annuitization. Annuitization often comes into play when a ‘minimum interest rate’ is quoted, for example, on a variable contract; Many folks believe that their ‘6% minimum guarantee’ is on their living balances, only to find out the hard way that they must give up their cash balances to achieve the ‘
Annuitization is just one way to begin taking income from your annuity. When you annuitize, you are creating a guaranteed stream of monthly or annual income payments. Different annuities may have different terms and conditions for annuitization. Your Financial Advisor can help you understand the annuitization provisions of a specific annuity.
