Definition
A Reversionary Annuity is a specialized life insurance contract that promises annuity benefits to an annuitant (usually a spouse) only if the annuitant is still alive at the time of the insured’s (often the other spouse’s) death.
Meaning
The reversionary annuity functions financially as a combination of life insurance and an annuity. It is unique because its benefits are contingent upon two conditions:
- The insured’s death
- The annuitant’s survival at that time
Etymology
The term “reversionary” stems from the word reversion, indicating a future interest reverting to an annuitant. The word annuity comes from the Latin annuus, meaning “yearly,” indicating a yearly payment structure.
Background
Reversionary annuities are designed to provide financial support primarily for spouses after the insured’s death. They offer a guaranteed income stream, which kicks in when the primary earner/pass-holder of the insurance policy dies, given the other spouse survives.
Key Takeaways
- Contingent Benefit Provision: Benefits only if the annuitant survives the insured.
- Financial Stability: Offers financial security to surviving spouses.
- Delayed Payment: Benefits are deferred until the death of the insured.
Differences and Similarities
Differences
- Life Insurance vs. Annuity: Unlike traditional life insurance, where the death benefit is paid to a beneficiary regardless of their survival, a reversionary annuity specifically links the benefits to the annuitant’s survival.
- Immediate vs. Deferred Benefits: Annuities typically defer payments until a future stated term; reversionary annuities are more specific about payout contingent on life events.
Similarities
- Financial Product Nature: Both life insurance and annuities aim to address future financial security.
- Structured Payouts: Annuity payments are structured in both, albeit delayed in reversionary annuities.
Synonyms
- Survivor Annuity
- Spousal Annuity Insurance
Antonyms
- Immediate Annuity
- Lump-Sum Life Insurance
Related Terms
- Annuitant: The person who receives the benefits from an annuity.
- Insured: The individual whose life is insured.
- Survivor Benefits: Payments made to a surviving dependent after the insured person dies.
Frequently Asked Questions
What happens if the annuitant dies before the insured?
If the annuitant dies before the insured, no benefits from the reversionary annuity are paid out.
Are premiums higher for reversionary annuities?
Typically, premiums may be higher due to the dual condition required for benefit payouts (survival of the annuitant and death of the insured).
Is a reversionary annuity suitable for everyone?
While suitable for couples looking to ensure the financial security of the surviving spouse, it may not be ideal for those requiring immediate or definite-term benefits.
Exciting Facts
- Reversionary annuities reinforce the unique blend of risk protection and financial advancement.
- They provide an emotional cushion alongside a financial one, easing the transition during the bereavement period.
Quotations
“Life insurance is as significant to life as insurance is to death.” — Unknown
Proverbs and Sayings
- Humorously put: “Insurance is like a helmet: you hope you never need it, but you wouldn’t ride without it.”
- Idiomatic wisdom: “Guard your nest egg with a golden gate.”
Government Regulations
Regulatory frameworks for life insurance and annuity contracts, including reversionary annuities, often fall under state insurance departments, such as the National Association of Insurance Commissioners (NAIC) in the United States.
Suggested Literature
- “The Handbook of Annuities” by Jeffrey K. Dellinger
- “Retirement Income Mastery: Annuities and Other Asset Strategies” by Dick Diamond
- “The Complete Life Insurance Guide” by Alan Lavine and Gail Liberman
Farewell Note
“Understanding financial protection products like reversionary annuities is crucial in safeguarding your loved ones. Be informed, be secure!”
Until next time,
- Samuel R. Thompson
