Legal Definitions - life annuity

A life annuity is a financial product designed to provide a guaranteed stream of regular payments to an individual for the remainder of their life. Once purchased, the payments typically begin at a specified future date or immediately, and continue until the death of the person receiving them (known as the annuitant). This type of annuity offers financial security by ensuring a consistent income stream, regardless of market fluctuations or how long the individual lives.

• Example 1: Retirement Income Planning

  After retiring at age 67, Eleanor converts a portion of her accumulated retirement savings into a life annuity. She receives a fixed payment of $2,000 every month from the annuity provider. These payments are guaranteed to continue for as long as Eleanor lives, whether she lives for another 5 years or 30 years.

  This illustrates a life annuity because Eleanor receives a predictable, regular income stream that is guaranteed to last for the entire duration of her life, providing financial stability throughout her retirement.

• Example 2: Structured Settlement from a Lawsuit

  Following a significant personal injury lawsuit, David is awarded a large settlement. Instead of receiving a single lump sum, his legal team arranges for a portion of the settlement to be used to purchase a life annuity. This annuity provides David with a tax-free payment of $5,000 every quarter for the rest of his life, helping to cover ongoing medical expenses and living costs.

  This demonstrates a life annuity as David is guaranteed a consistent and periodic income stream that will continue for his entire lifespan, funded by his lawsuit settlement.

• Example 3: Inheritance Planning for a Beneficiary

  A wealthy philanthropist establishes a trust fund for their niece, Clara. The trust specifies that upon the philanthropist's passing, a certain amount of money from the trust must be used to purchase a life annuity for Clara. This ensures that Clara will receive a monthly income of $1,500 for the remainder of her life, providing her with a baseline of financial support regardless of her own employment or investments.

  This example shows a life annuity being used to provide a beneficiary with a lifelong, guaranteed income stream, fulfilling the benefactor's wish for Clara's long-term financial security.