The term of a life annuity is the life of the annuitant (or in the case of structured settlement annuities, the measuring life). The last payment that would be made to an annuitant would be the last payment due prior to death. A life annuity provides payments that continue for life, regardless of how long the claimant remains alive. By taking advantage of the annuity issuers capacity to spread the risk of "living too long" amongst many such claimants, not every claimant need provide for the contingency that it may be he who remains alive beyond the end of his appropriate life expectancy.
One of the common criticisms of life annuities is "It's OK while I'm alive, but on my death the insurance company keeps all of my money". To some extent that criticism is valid. That is why most annuitants elect a life annuity with a guaranteed period.
Life Annuities with a Guaranteed Period
A guaranteed life annuity overcomes the above criticism in that it contains a provision that guarantees the payments to continue for a minimum number of years and thereafter for so long as the annuitant or measuring life remains alive. Understanding annuity concepts and life expectancy enables the annuity broker to assist the parties in selecting the most advantageous guarantee period to place on the annuity. The existence of family dependents, existing life insurance policies and other assets would have an influence on the determination of the guarantee period.
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"Rated-Up" Life Annuities
To successfully lead evidence at trial that a significant diminution in life expectancy may be ascribed to a given plaintiff may be difficult. Without the most compelling evidence a caring judge might be very reluctant to rule that the unfortunate victim before him was certainly going to die at some date much earlier than normal life expectancy.
An annuity issuer on the other hand is not faced with the onerous task of ruling on the future economic well being of a plaintiff and can easily categorize a given accident victim's injuries and ascribe a life expectancy assessment within which that individual may be grouped. Whether he lived too long or died too soon would not be of concern to the insurer since it need only be concerned with averages. As a result, annuity issuers often attribute a much more pessimistic life expectancy than do the medical experts or the courts. The outcome is simple; less years to pay = lower cost.
The fact that major annuity issuers compete fiercely with one-another further enhances the defendant's opportunity to purchase an annuity priced on the basis of the most pessimistic assumptions.