How long is an annuity guarantee period?
Choosing an annuity is one of the biggest decisions that a person will make in their lifetime, after all it is converting several decades worth of pension savings into a constant income which will provide the support and benefit to that individual or couple for the remainder of their lives.
Once an annuity has been purchased it cannot be reversed and once a person dies, the remainder of the annuity income is kept by the annuity company, this is why there are many policies in place to ensure that if a person were to die suddenly or unexpectedly just after taking out an annuity, their beneficiaries would still be able to claim some of their saved pension funds rather than it being taken in entirety by the annuity provider.
One of these is called an annuity guarantee period.
What is an annuity guarantee period?
In general this term refers to a period of time over which your annuity is guaranteed to provide an income to either you, or in the event of your death, to your beneficiaries. This period can cover any number of years, but is usually taken out for between five and ten years after the annuity is scheduled to start and is designed to provide a level of security to the annuitant or any dependants who may be reliant on that income.
Why might this benefit me?
Annuity guarantee periods are designed to benefit anyone who may unexpectedly die soon after taking out an annuity guarantee, while also ensuring that their family or dependants have access to this income, which they may be reliant upon. It also helps to ensure that the family receives a decent return on their annuity income. Without an annuity guarantee period a person could die the day after they take out an annuity and the family could be left without a penny of that pension amount.
What disadvantages could I face?
Unfortunately the annuity guarantee period doesn’t come for free and there is a cost involved. In general this is less than 2% of your annual annuity, but it can add up over time, especially if you choose to take an annuity guarantee period out over an extended period of time.
In addition, the annuity guarantee period only covers you for a certain period of time, so if you were to die unexpectedly after that time, unfortunately the insurance would not apply to your situation.