What is a Split Annuity?

Not everyone is familiar with a split annuity. Contrary to what the term implies, a split annuity is not a type of annuity. To clarify, a split annuity is just a term used to refer to a technique or strategy that aims to generate income on a monthly basis and to reclaim the principal invested. The reason why it is called split annuity is because of the so mentioned two-way purpose, each one represented by one annuity. This means that a split annuity is a single strategy that uses two annuity products, each one with a different purpose.

One of the most important characteristics of a split annuity is that it is usually single-premium. Both annuities, which in most cases are a deferred annuity and an immediate annuity, the immediate annuity contract is used for the first purpose, which is to generate income continuously and regularly.The other contract, which is the deferred annuity, then takes care of the second purpose, accumulating interest as time goes by to recover the invested principal.

To be clearer, you need to understand what a single-premium deferred annuity is and what a single-premium immediate annuity is. The main difference between these two is the time the payouts begin. A deferred annuity begins payments when the policyholder decides he or she wants it, while an immediate annuity begins paying out after the contract is closed. However, the immediate annuity portion is usually modified. Instead of paying out for the rest of your life, a split annuity's immediate annuity contract can be arranged so that it pays out for a specific period only. Mostly, this period ranges from around three up to twenty years. The single-premium clause means that the annuity's value is paid for in full at the moment the annuity contract is bought, instead of having to pay premiums on a monthly basis. This means that all throughout the duration of the contract, you won't need to shell out a single cent anymore after your initial payment and will only be receiving payouts.

Above anything else, a split annuity is a very effective way of investing financial assets. The two-way purpose of a split annuity makes sure that you earn money on your invested principal, and also recover the principal itself. If you are looking for a way to invest money, then a split annuity strategy is a very beneficial option for you. This is usually best for those who make use of annuities as a means of investment. As for those who are looking specifically for an investment plan geared towards retirement income, then a split annuity is not the best option.

However, make sure that before you buy a split annuity, you carefully consider whether it will benefit you in the long run. This can be a pretty expensive annuity contract, especially since it entails two different types of annuities and provides two joint benefits. If you are certain that you will be the winner in a split annuity strategy, then go to life insurance companies and compare different offers to begin looking for the best possible annuity arrangement.