Among retired couples, the better half maybe financially vulnerable. For example, in the case of a single life payout annuity on the husband, the wife (usually the one to live longer) may lose her income, when husband dies. of course, there is always the option to have annuities structured to pay out over both lives, but the annuity payment would be greatly reduced. And, if the supposedly longer-lived spouse dies first, the reduced annuity payment was a total waste, over a lifetime. Thankfully, there are ways in which the husband or wife can help provide an income for the surviving, similar to another pension or Social Security payment.
The alternative suggested here doesn't involve buying a life insurance on the husband's life, which may be a viable option (in such a case, the husband first applies for life insurance, gets accepted, and then purchased the immediate annuity with the larger single life payout and uses part of the annuity payments to pay the life insurance premium). In the case of life policies, there's also the question of the surviving spouse's ability to manage the single large pay out received from the insurance.
Another alternative is the reversionary annuity. In this case, the husband is the insured and the wife is the beneficiary. Upon death of the husband, rather than the wife receiving a single lump sum, annuity payments for life go to the wife.
The reversionary annuity is a unique product that includes the benefits of a term life insurance policy, an enduring life insurance policy, and an immediate annuity. The premiums for a reversionary annuity will be less than a plain life policy because the beneficiary cannot be changed once you have made your option. This clause brings down the rate of the premium, as the issuing company has the capacity to estimate annuity payments more exactly based on the beneficiary's age. Hence, the insurance companies can use life expectancy for the spouse and the wife to get to reasonably-priced, competitive premiums, lower than a conventional p0licy.
Taxation of reversionary annuity payments
The beneficiary will be taxed on a portion of each payment of the annuity payments. The un-taxed portion with this form of annuity payment, is based on the tax-free return of the reversionary annuity's value at the time of the husband's death (this value becomes the basis to be returned tax free to the wife). Each annuity payment received by the wife will be partially tax exempt. This tax exempt portion is not included in income for purposes of calculating the social security tax.
The reversionary annuity presents an affordable way to safeguard the particular beneficiary's financial future after the spouse's passes. Because not all reversionary annuities are alike, shopping is in order. For example, some products offer the premium back if the insured outlives the beneficiary (in which case the policy is no longer needed), even though other annuities of this kind offer inflation-protected annuity payments. Some reversionary annuities do not require beneficiaries to pass any medical exam.
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