A structured annuity policy may either be purchased as a private investment product or is offered to employees as part of a benefits plan. Once an annuity is taken out, most policies have payment options or conditions that can reduce the original principal or stop payments entirely. Often, the annuity payments can be restored if certain policy conditions are met on the part of the investor.
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Why Annuities End
Annuities pay out a certain amount of funds to a recipient on either a monthly or annual basis over a fixed period of years. Payments to an investor are structured so that the original principal is completely restored by the end of this fixed period. Fixed payments on an annuity usually end because the main beneficiary died.
Certain types of annuities can also be ended if certain conditions arise. For instance, a disability annuity is often ended once the beneficiary earns an income that reaches a certain percentage of their pre-disability income.
Restarting the Annuity
Contact the annuity provider to determine the conditions under which canceled annuity payments can be restored. Private annuities ended because of the death of a beneficiary can often be restored to a surviving spouse even when separated or divorced, provided that the spouse doesn't remarry by a certain age or the second marriage ends. Often, a beneficiary must be identified and named on the annuity policy for annuity payments to be transferred.
For disability annuities, payments may be restarted if the beneficiary's income drops below a certain level within the year or the beneficiary cannot recover medically.
Restoration of Principal Annuity Amount
Survivor and spousal benefits in annuity plans can lower the actual annuity payments distributed to a beneficiary from the original principal. For example, Civil Service Retirement System annuities offer a benefit which can transfer partial annuity payments to a spouse, up to a maximum of 55 percent of the annuity either in a lump sum or in regular payments.
If the spouse receiving this benefit dies, the main beneficiary can elect to remove the spousal benefit and restore the annuity to its original principal. Contact the annuity provider to determine how to restore the annuity's original principal.
Deferred vs. Immediate Annuity Policies
The two main types of structured annuity policy purchased by investors are tax deferred and immediate annuities. A tax deferred annuity restores the original principal of the annuity to the beneficiary at the end of the fixed payment period. Once the tax deferred annuity is restored, taxes on investment income are applied.
For immediate annuities, taxes on annuity payments are applied to each repayment over the course of the fixed period. This requires more time for the principal to be restored, but eliminates the lump tax payment at the end. Annuity policies combining elements of both of these structured plans are referred to as split annuities.
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