As one of the biggest decisions that you will potentially ever make, deciding which annuity is best for both you and your family can be a crucial choice. It’s important that you pick the right annuity to suit your situation as it is designed to be an income for the rest of your lives. When you come to realise that this is the final investment that you may ever make, it can put additional pressure on the situation.
Many people are concerned that they may take out an annuity and then die quite shortly afterwards, therefore losing much of the money that they had saved. To help appease the concerns of the annuity maker, most annuity companies offer what is known as an annuity guaranteed period, this helps to ensure that even if the maker was to die within the first few years of the annuity, the money would still be paid out to the next of kin.
There is a minimum amount of time over with your annuity will be paid and this is essentially your guarantee period. If you are alive throughout the period of your guarantee then it will be paid to you, if you die during the annuity guarantee period then it will be paid to your next of kin. So if you were to die unexpectedly after taking the annuity out then it would be guaranteed that you or your family would receive at least some of the annuity income.
In general five to ten years is a pretty standard time for an annuity guarantee period, but this is determined on an individual basis. Although it is more expensive to take out a ten year guarantee, more people tend to prefer the security that this type of guarantee gives to the annuitant and the longer period that it pays out over.
Although it may not seem like the cost of an annuity guarantee period is very much, in general it is about 1.7% of the total income amount, this is an amount that is paid on the entire annuity income and could be paid annually, which can add up over time, especially after the designated period has ended.
Find out more about annuities.