Uses And Limitations Of Annuities

Guaranteed life income. 

The primary benefit of an annuity is to guarantee the owner an income for life. One of the main advantages of this guarantee is that it frees the individual from financial worry and fear. Since physicians claim that half of human ailments are probably attributable at least in part to fear and worry, the elimination of such fears may even contribute to the greater longevity of annuitants in general. 

The peace of mind generated is justified because of the remarkable record of the solvency of life insurance companies. In addition, annuitants need not worry about managing the investment of their assets. Rather, they can rely on the investment management provided by insurers. 

Release of funds for other uses. 

In order to derive a $4,000 annual income from interest alone, an individual would have to invest $100,000 at 4 percent. He could not part with any portion of this $100,000 to help children meet financial crises or to give to philanthropic institutions without reducing his yearly income. On the other hand, it would take less than $50,000 to purchase a single premium immediate ten-year certain life annuity which would provide the same $4,000 per year and at the same time free $50,000 for other uses, such as financing a son’s business or giving to a favorite charity.