Bob Affronti - Mr. SPIA (Single Premium Immediate Annuity) web page

Immediate Annuity Product Design, Quoting, Training, Sales and Service 

With the baby boomers starting to reach retirement age, a fresh look at the SPIA is timely.  The SPIA comes in various forms.  Following is a list of SPIA payout options available from most companies.

1. Life Only - This will produce the largest amount of income, but  payments stop at death

2. Life with Period Certain - Payout is made for life, but with some minimum number of years guaranteed (5-50 years).

3. Life with Cash Refund - A money back guarantee annuity. Payout is made for life, but if death occurs prior to payments totaling at least the premium, then a lump sum cash payment is made.  For example, if $100,000 is invested and payments of $1,000 per month are made for 5 years (60 months) and the annuitant dies, the beneficiaries will receive a lump sum of $40,000.

4. Life with an Installment Refund- Another money back guarantee annuity. 
   Same as cash refund except the beneficiaries continue to receive the monthly income until the full premium is paid out.  In the above example, there would be 40 more payments made monthly.

5. Joint and Survivor - This payout option guarantees that payments will continue for the lives of both annuitants.  Period certain options can be added.  This form is used primarily with married couples to provide income as long as either one is alive.  Sometimes the benefit drops upon the death of the first or the primary annuitant.  This option produces a higher initial benefit.

6. Period Certain Only - This option provides a benefit for a certain period of time, typically 3-50 years with no life contingency involved.

7. COLA SPIA - This is a life annuity with payments that increase or decrease by a set percentage each year.  Initial benefit can be substantially lower than non-COLA annuities.

Medicaid Immediate Annuity

In some situations, the purchase of a restricted SPIA can help an individual to qualify sooner for Medicaid assistance, and potentially pass on a greater estate to their heirs at death.  In effect, the assets placed in such an annuity are no longer considered as assets that must be “spent down” prior to Medicaid eligibility.  Then at death any remaining payments are paid to the beneficiary and may be shielded from Medicaid collection.

Split Annuity (Combo)

A very useful approach is the Split Annuity.  In this structure an SPIA is used to provide income for a period of years, generally 5-10 years and a multiple year guarantee is used to get back the original principal in the same number of years.  Many seniors have CD’s on which they withdraw the interest each year.  They want to leave the principal to their heirs.  A split annuity can greatly increase the income side and still guarantee a return of principal at the end of the term.  This idea works so well because most of the income is received tax free based on the exclusion ratio and the growth side is helped by the deferral.

Deferred Start Immediate Annuity

Sometimes clients want to start a payment stream at a certain time in the future.  An SPIA can be purchased with a guaranteed payment stream that starts as far out as perhaps 20 years.  This can be a valuable planning tool where a 60 year old client may want $1,000 per month for life starting at his 65^th birthday.  An SPIA can guarantee both the premium and benefit.

Life Insurance and LTC Funding

More and more the SPIA is being used to fund the premiums on life and LTC policies.  Funds in an SPDA can be exchanged to an SPIA and life insurance purchased to offset taxes on the built up gains.

I suggest that all agents become familiar with SPIA’s and their possible uses.  The key element is that all aspects carry the magic word “guarantee”.  For conservative clients with income needs, a guarantee may be exactly what is desired.  An income which can’t be outlived.  By shopping many carriers agents can get their clients the best deals available.

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Last modified: 10/18/06