What is an annuity guarantee period?

11th January 2012

Annuities offer a constant pension income for the rest of your lives. Annuities are an alternative form of income and they do provide a form of stable income for people who need a regular payment throughout their lifetime.

The only problem with annuity income is that once you die it stops and any money that you haven’t claimed is then redeemed by the annuity company, leaving almost nothing to your family or friends (unless you have opted for a joint annuity). To help combat this problem you can take out an annuity guarantee which works in the same way as an insurance over your annuity – it ensures that if you die very soon after purchasing the annuity it will still be paid out to your beneficiaries for a number of years to come.

This type of guarantee could be paid out over a number of years depending on how long you choose to take it out, in general it’s somewhere between five and ten years.

What is the benefit of an annuity guarantee period?

An annuity guarantee period really comes into effect if you were to die early into your annuity. In a normal situation without the guarantee period the money that you  used to buy the annuity would be kept by the annuity company – this is one way that many annuity companies make their money. Leaving nothing to your family, even if you have built up quite a large pension pot.

The main benefit of an annuity guarantee period is that it guarantees that your annuity will be paid, regardless of your circumstances. So if you take out a ten year annuity guarantee and die in the first year, then it will still be paid for the next nine years. This income will then be paid   according to . Your wishes and could be distributed accordingly.

What costs could I be looking at?

The inclusion of a guarantee period is usually relatively inexpensive, particularly for a 5year guarantee.

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