The commonly offered and state-mandated settlement options include payments made as follows: in cash; in a fixed amount over some period of time; for a fixed period of time in some amount; or any of the common annuity options.
The critical element to examine is not the options, per se, but whether or not the insurer makes age or time adjustments to the settlement options. A relatively small number of companies have provisions that are apparently intended to make an adjustment for anticipated increases in longevity so as to decrease the present value of future benefits for persons who are expected to begin receiving life annuity benefits well into the future. In other words, the annuity rates for annuity settlement options specified in the contract become less favorable the farther in the future one expects the insurer to pay the annuity. Although these reductions may be warranted if life expectancies increase as these companies apparently believe they will, the longevity improvements may not materialize as anticipated. Regardless, companies that have not made adjustments to the future annuity settlement rates in their policies are clearly more attractive than those that have made adjustments.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM