Single Life Annuity

What Is a Single Life Annuity?

Single life annuities, also called straight life annuities or life only annuities, are contracts that guarantee a stream of income for the lifetime of only one person — the annuitant.

They do not provide income to surviving spouses or additional annuitants when the annuitant, usually the annuity owner, dies. The high monthly payouts and lack of a legacy or sustained income stream make this annuity uniquely suited for a single person who has no intention of providing financially for others after their death.

When Does a Single Life Annuity Benefit Married Couples?

As part of a holistic financial strategy and diverse portfolio, a single life annuity may benefit married people or retirees with alternative sources of income and other assets to leave to beneficiaries. Retirees who have begun their estate planning may find that a single life annuity can fill a gap left by other investments and retirement savings accounts.

Married people generally opt for an annuity structured in such a way that it can continue to provide income to the surviving spouse after the first spouse dies.

It may make sense, however, for a married person to buy a single life annuity if his or her spouse has another income stream. This still allows the first spouse to maximize their retirement income without worrying about leaving a surviving spouse with nothing to live on.

An interesting strategy utilizing single life annuities is when they are coupled with a permanent life insurance policy. Let’s say a couple has $500k set aside for an annuity, but one spouse also has a $500k permanent life insurance policy. They could choose a single life annuity with the spouse who has the insurance as the annuitant. The annuity income payments will stop at that spouse’s death, but the other spouse will receive the life insurance payout and then choose to purchase another annuity.

Chip StapletonFINRA Series 7 and Series 66 License Holder

Chip Stapleton is a financial advisor who has spent the past several years of his career working primarily in financial planning and wealth management. He is a FINRA Series 7 and Series 66 license holder and passed the CFA Level II exam in 2022.

Pros and Cons of Single Life Annuities

Single life annuities are a popular option, but they are not for everyone. Each type of annuity has its benefits and drawbacks, and it’s important to consider whether the rewards of a single life annuity outweigh the risks for your financial situation.

Annuities with a life only payout typically provide the largest individual payment amounts when compared with other annuitization options. The guaranteed life payments can provide some peace of mind, ensuring that you will not outlive your retirement savings.

However, a single life annuity also comes with the most risk, as payments can end unexpectedly when you pass away. Unless you pay extra for a death benefit rider, what remains of your annuity’s value goes back to the insurer when you die and they will make no payments to beneficiaries.

Alternative Annuity Payout Options

As with every other feature of an annuity, payouts can be structured to suit your needs. If your objective is to provide income for your spouse upon your death or leave financial assets to a beneficiary, you’ll be better off purchasing an annuity with a different payout structure.

Other annuity payout options include:

• Period Certain
• Life Annuity with Period Certain
• Joint and Survivor Annuity
• Lump-Sum Payment
• Systematic Annuity Withdrawal
• Early Withdrawal

None of these options is inherently better than the others. According to the Bureau of Labor Statistics, payout decisions are not only about monetary value. The type of payout you select should align with your long-term goals and retirement lifestyle.