A life annuity insurance is a savings product specially designed for retirement. To contract this product, the insured person pays a premium and with it will receive an income until death, being able, where appropriate, to allocate a percentage of the income to its beneficiaries.
Within the savings and investment products intended to maintain the standard of living in retirement are the so-called life annuity insurance. This type of insurance guarantees that the holder will receive a regular income until his death.
The contracting of a life annuity insurance establishes the payment of a single capital contribution (single premium) or several contributions (extraordinary premiums). With this, the insured will receive a regular monthly, quarterly, or annual life annuity (revaluable or not) whose amount will depend on the total capital contributed by the holder, as well as the profitability of the insurance itself.
Capital on death: If so established in the contract, in the event of the death of the insured, an amount can be left that his heirs would receive. This amount can be received by the heirs in a single payment and is usually set as a percentage of the premium contributed. Reversal of income: Another modality that can occur is that if the insured person dies, a beneficiary would receive the same income as the insured or a percentage thereof.
The client can choose to receive a higher periodic income to the detriment of the capital that their beneficiaries will receive, or reduce their life annuity in order to ensure a higher payment for their beneficiaries after their death. Among the particularities of life annuity insurance are that the contributed capital is available to be recovered by the holder.
It is advisable to respect the lifetime nature of the income in these insurances. In addition, life annuity insurance has significant reductions at the time of receiving the benefit, which can reach up to 92% of the income. The periodic income that the holder receives is considered as a tax return on movable capital. Depending on the age of the client, this income received will be taxed at a variable percentage. It is important to highlight that, in the event that the holder cancels his insurance, the redemption of the resulting capital ceases to have the aforementioned tax benefits.
Planning savings with a view to the future, especially with a view to facing periods in which income may be reduced or expenses increased, is today a necessity and even an obsession for many Spanish families, especially taking into account the uncertainty regarding the payment of future pensions of the Spanish population. This is the case with life annuity insurance.
What are life annuities?
Life annuity insurance is a savings policy that ensures the periodic payment of an amount of money based on the payment of a previous premium. Life annuity insurance is used to plan the savings available and dose it in the form of income from a certain period. The greater the premium deposited, the greater the amount that the depositary will receive in the form of income.
This type of life annuity insurance is used by the saver to convert an amount of money, normally large, into a periodic payment for life. In other words, customers know at all times the minimum income they are going to receive, with the guarantee of minimum interest throughout the operation.
In addition to the monthly income, in contracting the product you can also request coverage for death. If this coverage is contracted, when the insured person dies, their beneficiaries will receive the single premium provided, plus or minus a small percentage.
What is the customer profile of life annuity insurance?
The typical profile that hires this form of savings is a middle-aged client with significant savings already established, often from inheritances or real estate sales, which are the premium that enters the life annuity insurance. The ideal clients of the product are those over 50 years of age: in fact, taxation is more attractive the older the insured person is, as we will see later.
How do life annuities work?
When contracting the product, the insurance holder must pay an amount of money, normally high in order to obtain a significant monthly income. The monthly life annuity that he will be able to obtain will depend mainly on his age, sex, and life expectancy.
The entity will calculate how many years the client can be received: the older the age, the lower the initial premium that must be paid to the insurer to obtain a good income, since it is assumed that they will live fewer years than another person younger.
Types of annuities
There are currently two main types of annuity insurance:
- Immediate income: the beneficiary begins to collect, as agreed in the contract, immediately upon contracting the insurance. In this case, for example, the owner signs the insurance today and begins to collect a monthly rent next month.
Deferred income: The beneficiary begins to collect, as agreed in the contract, from a certain future date. With this option, a client can sign up for insurance today, at age 50, and may wish to start collecting in 15 years (at retirement)