As people retire, they will typically look at cashing in their pension pot and purchase an annuity. An annuity simply guarantees an income for life in exchange for a lump sum payment. The income you will receive from an insurance company will vary depending on factors such as your state of healthy, or more crudely how long you are expected to live for.
Insurance providers provide different annuity rates, therefore it is of crucial importance to do your homework and find the best rate. When purchasing an annuity, you may be presented with various options as follows;
An enhanced annuity. This is an annuity in which is aimed at people with less favourable lifestyle conditions such as those who smoke. Because of the lower life expectancy, an enhanced annuity can offer a far better income than a standard annuity. Following on, an impaired annuity is more suitable for those with a very serious health condition such as a heart problem. This will provide a far higher rate of return than an enhanced annuity.
A joint annuity will continue paying your partner an income for the rest of their life should you die first. In contrast, a single life annuity will pay out more but it is terminated should you die.
To take into the effects of inflation, an escalating annuity may be suitable for those who wish to gradually increase their annuity income yearly. Contrastingly, a level annuity simply pays out a flat rate on a yearly basis.
It is also possible to add a guarantee to an annuity. This can be important to offer total piece of mind. For example, it is possible to guarantee to be placed on the annuity for a set number of years. Therefore, your family shall still receive a level of income should you die shortly after the date of annuity purchase.