Annuities & Other Products

An annuity turns a sum of money into a stream of periodic income payments made to a named individual. In effect it is the reverse of ordinary life insurance: instead of building up a sum, it liquidates a capital sum into regular income — its core purpose being retirement income so that a person does not outlive his money.

The annuity owner (usually also the annuitant, the person who receives the payouts) pays the insurer either a single premium — often called the purchase price or consideration — or a series of premiums. The insurer invests the premiums to earn interest, and starts paying the annuitant if the policy remains in force to a specified date. The stretch of time from the first (or single) premium until payouts begin is the accumulation period; the stretch during which income is paid is the payout period. The income paid out is the annuity income benefit.

There are two main categories, grouped by when payouts begin:

• •An Immediate Annuity starts paying almost at once — the income stream begins one payment period after purchase (e.g. one month later for monthly payouts). Because payouts start immediately, it must be bought with a single lump-sum premium paid upfront. People buy it for peace of mind: it converts a sum of money into a regular fixed income for the rest of their life, so they cannot outlive that sum.
• •A Deferred Annuity begins payouts only on a future date, usually at least a few years after the policy starts. It can be funded by either a single premium (the most common way; the insurer usually sets a minimum amount) or regular premiums (yearly, half-yearly, quarterly or monthly — suited to those without a lump sum or who pay over their working years). The annuities CPF members could buy with their CPF Minimum Sum are examples of deferred annuities — immediate annuities were not allowed.

What happens to an Immediate Annuity if things change: before payouts commence, if the annuitant dies or the owner cancels, the insurer usually . After payouts commence, on the annuitant's death any survivor/refund benefits go to the beneficiary and the policy ends; if a minimum guaranteed period is running, payments continue to the end of it. A surrender value is usually paid only if surrendered a guarantee period.