In recent years we have heard many times about the future of retirement pensions in our country and some experts recommend looking for investment products that can serve as a complement to our pension, once the time comes to stop working. The best known are pension plans, but have you heard about life annuity insurance? At Hipotecas.com we tell you what they are and how they work.
What are life annuity insurance policies?
Life annuity insurance is a type of life-savings insurance in which an entity guarantees the insured a periodic income until his death, in exchange for a single premium or several premiums agreed between the insurance entity and the policyholder.
Unlike a pension plan, which experts recommend taking out once we reach the age of thirty, this type of insurance is an alternative for those people who did not have the opportunity to take out a pension plan during their thirties. In fact, although all individuals between the ages of 15 and 85 can take out insurance, some experts say that the ideal age to take out one is usually from the age of 50.
This type of insurance has a fixed return that depends on the life expectancy and the periodicity agreed in the contract. Normally, when contracting this type of product, the policyholder must contribute a large sum of money to obtain a significant monthly income.
What types of contracts exist?
There is currently a wide variety of life annuity insurance policies and their conditions will depend on the entity with which it is contracted, the capital contributed by the policyholder and the profitability that it has generated.
The insured can receive their income immediately after taking out the policy (immediate income) or postpone it until after a certain period of time (deferred income).
It is also possible to take out life annuity insurance with two insured parties. In the event of the death of one of them, the other could accumulate the two incomes. Likewise, the policyholder can choose to receive a higher periodic income to the detriment of the capital that the beneficiaries will receive at the time of death, or reduce his life annuity to ensure a higher payment to the beneficiaries.
As a general rule, two modalities can be chosen in relation to the heirs of the policyholder.
Capital upon death: If we choose this option, in the event of the death of the insured, the heirs would receive an amount as a single payment.
Reversion of income: If we opt for this option, in the event of the death of the policyholder, his heirs would receive the same income as the insured or a percentage of it.
Another alternative, recommended for those who do not have heirs, is to consume all the contributed capital through income.
Do they have tax advantages?
The 2015 tax reform added advantages to this type of insurance. Law 26/2014 established that, from January 1, 2015, capital gains generated by the transfer of assets (property, funds, shares, etc.) obtained by those over 65 years of age and who reinvest them in a life annuity would be exempt. In other words, those over that age who receive an inheritance, sell a flat with profits or liquidate an investment fund with profits will not have to pay anything to the Treasury if they allocate that money to this type of insurance.
What happens when the insured dies?
It should be noted that the insured must directly name the beneficiaries of the insurance , who do not have to coincide with the heirs of the will, since life annuity insurance works as a legacy and, therefore, is not incorporated into the will like the rest of the assets and rights. If the insured does not name the beneficiaries of the insurance, payment would be made in exclusive order to: the spouse, living descendants, living ascendants and legal heirs.
Can the single contribution or agreed contributions be recovered?
Policyholders may request redemptions, although insurers may normally impose penalties.
This type of insurance allows us to convert our second home or investment fund into a monthly payment until we die. However, as with any financial product, it is advisable to carefully analyze all its characteristics and conditions to avoid unpleasant surprises.