What are the merits of "Joint Life" versus "Single Life with Guarantee Period"

C0lin61

Looking to take out an annuity which will provide an income for my wife and me; with the income continuing to be available until the second death.

What are the relative merits of ;-

A- a single Life annuity on my life with a guarantee period during which my wife continues to receive the income.

B :- a joint Life annuity ( where the income is only 93% of A) but pays up to second death

Thanks

NedS

C0lin61 said:

Looking to take out an annuity which will provide an income for my wife and me; with the income continuing to be available until the second death.

What are the relative merits of ;-

A- a single Life annuity on my life with a guarantee period during which my wife continues to receive the income.

B :- a joint Life annuity ( where the income is only 93% of A) but pays up to second death

Are you sure (B) doesn't pay 50% of the annuity to the surviving partner upon death?

I don't know if 100% joint life policies are available or not (I guess they may well be, although not quoted by standard on the usual readily available tables) We had looked at splitting the pot in half, each taking out an equal joint life policy, so the survivor would still retain 75% income (100% of their own policy and 50% of the deceased partner's policy), as neither would want to drop to 50% income as a survivor.

gm0

Single life annuity products cause a significant number of queries here sometimes in very difficult circumstances where spouses didn't know what had been done and private pensions have stopped at notification of 1st death to the shock and dismay of families.  Yet this was what the deceased had put in place (for higher income) when they bought it at retirement.  Just hadn't communicated about it.

Guarantees

You need to be *very* clear on the nature of any guarantee period - how long it is - finding a true first death to assumed 2nd death within X years overrun type of feature. Not just a "10 years from the start of payment" type of guarantee of the sort that is marketed to people worried about buying annuities at 67 and dying at 70 to the benefit of the death pool run by the life company and picking that annuity because of the guarantee/cashback feature for very early death

Joint Life

Anything short of joint life products which play around with guarantee terms and a higher income are essentially a bet on the actuarial tables - the survivor has the very real possibility of outliving the income.   It is unusual to want to take bets on this in the age 80-90+ range but people with specific family histories and pre-existing health conditions may view it differently to a broadly healthy 65 year old couple.

If you want 100% or 50% or something else from 1st to 2nd death whether that 2nd death is soon after or 25+ years later - then joint life and a lower starting income is the robust way to secure that "can't outlive it" feature in the annuity space (as opposed to drawdown approaches which have their own issues). 

Clearly every couple is different and their relative private pensions and state pensions entitlements are different so it is hard to generalise.

Single life policies exist for a reason.  They do suit some people and their health and financial affairs.

But some of what you wrote about "income until 2nd death" suggests you may not be one of them. 

Apart from joint life the other big issue is indexation of income.  Starting income will be a lot lower with it than without.  And yet if you look back to the history of the last prolonged inflation spike in the 1970s.  People who had locked in a fixed income without any indexation were punished badly by a decade plus of high inflation as their fixed income dwindled in value vs prices and earnings

Consider "outliving", survivor spouse % amount, and indexation - carefully. 

And do shop around beyond the occupational you saved up with.  It's another market where no act of loyalty goes unpunished.

dunstonh

C0lin61 said:

Looking to take out an annuity which will provide an income for my wife and me; with the income continuing to be available until the second death.

What are the relative merits of ;-

A- a single Life annuity on my life with a guarantee period during which my wife continues to receive the income.

B :- a joint Life annuity ( where the income is only 93% of A) but pays up to second death

Thanks

A - risk that you die after the guarantee period has run out and leave your wife nothing.  Or risk that the guarntee runs out whilst she is still alive.
B - This or value protect are usually the sensible option.

Often, if the spouse is older or same age, the cost difference is not significant to go 100% with no guarantee or 100% value protect on first or second death.

Malthusian

Traditionally, if your wife needs the income you would go for joint life. Guarantee periods are more for softening the blow if you die early (so that the insurer doesn't pocket all or nearly all of your payment).

If your wife needs the income now and she still needs it in 10 years then she will still need it in 11 years.

bostonerimus

The merits are the knowledge that the surviving spouse will have an income until their death and not having to explain why you are gambling with income later in life.

DullGreyGuy

C0lin61 said:

Looking to take out an annuity which will provide an income for my wife and me; with the income continuing to be available until the second death.

What are the relative merits of ;-

A- a single Life annuity on my life with a guarantee period during which my wife continues to receive the income.

B :- a joint Life annuity ( where the income is only 93% of A) but pays up to second death

Only B provides your requirement for payment 2nd death as the guarantee period could run out decades before the 2nd death