What if an Annuitant Outlives Their Policy Term?

If you are a contract owner with an insurance company where you pay dues expecting a future payout, then you are an annuitant. Typically, annuity payouts are structured to start out at retirement, but the contract holder can really opt for distributions for any time period they choose. If you start your payout benefits earlier or live anexponentially long time, you may actually outlive the life of your policy. If that is the case, what happens when the annuitant outlives their policy term?

Annuity Account Stages

There are two basic stages to an annuitant account:

  • Accumulation Period – the time in which a contract holder pays into the account
  • Annuity Period – the time that the payout benefits starts and occur

The payment size is determined by the total account value including the total contributions made, interest gained and the life expectation of the annuitant. When the annuity is originally set up, the insurance company uses mortality tables to give their best estimate of how long you will be expected to live. It is harder to judge your life expectancy, but most life insurers will do so anyways. By assigning a life expectancy, they are able to establish when payments from your annuity will cease.

Value of Mortality Guarantees

Within annuity contracts, their is an act called forfeiture. That is when an contract holder dies prematurely to their expected “expiration date.” At that time the annuity becomes the property of the insurance company. The insurance company then uses that money to help make payouts to those who have outlived their policy length. As long as your annuity provides you with a “mortality guarantee,” you will receive payments for as long as you live.