Single Life Annuities: Complete Guide

Thinking about securing your retirement plans with peace of mind? If so, you may have heard about single life annuities offered by your employer or through a private insurer.

Also known as a “straight life annuity” or a “pure life annuity,” these annuities provide a regular source of income to an individual until their death. But they come with a number of features that may or may not be right for your financial strategy in your golden years.

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What is a Single Life Annuity?

A single life annuity is an annuity that has been chosen to pay out for the duration of only the lifespan of the annuitant. This differs from joint life payout, where a spouse and/or beneficiaries receive the remaining payments according to the policy type (i.e., monthly payments, lump-sum withdrawals, etc.).

How Single Life Annuities Work

Essentially, the policyholder makes tax-deferred premium payments until a specific time period or amount has been reached. This is known as the "annuitization" phase of a single life annuity.

Once this phase has elapsed, the policy then enters the payout phase, where monthly payments are disbursed to only the policyholder.

Single life annuities can come in two forms: fixed and variable. This means that based on the underlying performance of the insurer’s portfolio related to the annuity, the policyholder can grow their wealth in variance to market performance with a variable single life annuity.

Or they can hedge their bets with consistent payments in the form of a fixed single life annuity. Both types carry some form of risk depending on inflation and market performance.

Who Should Consider a Single Life Annuity?

Like its namesake, a single life annuity is geared towards those without beneficiaries who don’t want to outlive their income. Considering that males have a shorter life expectancy than women, a straight life annuity policy for men is less expensive when compared to female-annuitant policies.

When Should I Purchase a Single Life Annuity?

Starting as early as possible is best when funding a single life annuity, usually after maxing out similar funds such as an IRA or 401(k).

Older individuals will face higher premiums when purchasing a single life annuity, as the premium has a shorter potential period to be funded before the annuitant passes away or may need to deduct funds from the account through long-term care riders.

How to Compare Policies by Insurer

As you may guess, there are some notable differences when it comes to single life annuities and the insurance companies that issue them. Let’s take a look at some aspects to compare single life annuities by insurer:

Best rates: Perhaps the primary metric of a single life annuity you want to select is determined by the rates of return. These are easily compared between companies, but there is a catch you should be aware of. Some companies charge fees, such as administration fees and others which can eat into your profits. To ensure that you aren’t getting a bad deal, be sure to ask for a prospectus. A prospectus is a detailed list of earnings, rates, fees, and other relevant information related to your annuity. This breakdown can help you crunch the numbers and look out for anything that stands out between similar policies.
Longevity of the company: You’ll want to select a company that has been well-established in offering policies for years. Newer companies may offer rates of return that are slightly above their competitors, but you could face a series of setbacks to claim your annuity’s funds if the insurer goes bankrupt.
Availability of policy riders: Single life annuities gain new functions based on the riders that you sign up for when your policy is issued. For instance, if long-term care is a concern for your retirement, you may want to have access to your annuity’s funds through an LTC rider. Typically, these cost more in premiums to sign up for but may be more in line with the type of coverage you’re looking for.
Customer service: The way you’re treated by an insurer can mean a lot to how your policy works for your future. If you find that it is difficult to speak with an available agent, that you’re receiving sales language, or have read negative online reviews about the company, trust your gut and explore other options. After all, you don’t want to spend all day on hold in the future when you should be enjoying your golden years, nor should you have to fight for coverage you thought you had but didn’t.

Be aware that there are many distinctions between how insurers pay out and what’s included in the fine print. As an advocate for your financial interests, independent insurance agents can work with you to compare policies.

Feel free to ask them any questions about your retirement needs and what you’re looking for in a policy. Their expertise will simplify the process instead of going the do-it-yourself route.

Are There Any Discounts on Single Life Annuity Policies?

Because single-life annuity policies are geared towards single individuals without beneficiaries, and payments stop when the annuitant passes away, they remain some of the cheapest annuities on the market. This serves as a built-in discount when compared to joint-life policies.

Even in their most basic form, annuities serve the purpose of gaining tax-deferred benefits when you’ve maxed out other retirement accounts. The IRS offers the 1035 Exchange, which enables single life annuity policyholders to avoid taxation on transferring funds until they begin to withdraw them.

If you’re looking to explore your financial options in retirement, speaking with an expert can ensure that your investments are the right fit. An independent insurance agent can help you make sense of the fine print and explain how every aspect of each policy affects your unique situation.

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