What is an annuity insurance policy?
A pension annuity is a financial instrument that ensures a consistent stream of income throughout your entire life. Typically disbursed on a monthly basis, although alternative payment frequencies are also available, this policy requires an initial one-time premium payment to initiate the transaction. This arrangement offers you a sense of security, as it guarantees a fixed monthly amount regardless of your lifespan. Your are relieved of the burden of managing funds, navigating market fluctuations, and strategizing for lifelong financial stability.
In this type of insurance, the risk of longevity is implicitly involved. For the policyholder, the longer they live, the more returns they will gain from the insurance policy, and vice versa. To prevent a “premature death” by the policyholder from resulting in a significant loss, various additional benefits can be added to this insurance policy to cover the death of the policyholder. These include:
Reversion occurs when, in the event of the insured’s death, the annuity payment continues for the lifetime of a third party. In other words, the designated third party will keep receiving the full annuity payment or, if preferred by the client, a reduced percentage for as long as they are alive.
Under this option, in the event of the policyholder’s death, a lump sum payment will be made to the designated beneficiaries. The amount is typically determined based on the premium paid and the annuity payments received up until the date of death.
A certain period is established when a fixed period (usually 5 or 10 years) is defined, during which, if the policyholder or both policyholders pass away, the designated beneficiaries will continue to receive the annuity payments until the end of that period. The period starts from the date of the annuity contract.
Advantages of purchasing an annuity insurance policy
The acquisition of an annuity insurance policy entails several advantages:
- Security and peace of mind: The annuity payments are guaranteed for life and provided by a highly solvent institution. They serve as an additional and fixed income complementing any retirement pension received.
- Profitability: The insurer generates returns on investments, which are passed on to policyholders in the form of higher annuity payments.
- Flexibility: Various options are available to cater to your specific needs, allowing you to select the most suitable offer.
- Estate planning tool: As a form of insurance, annuity policies enable the designation of a beneficiary upon the policyholder’s death, which may differ from the statutory heirs.
- Favorable tax treatment: The older the beneficiary at the time of annuity purchase, the more advantageous the tax implications become. Taxation is applied only to a portion of the received annuity income, with a lower percentage as the beneficiary’s age increases. Furthermore, there is a possibility to benefit from an exemption of tax on capital gains derived from the transfer of assets by individuals aged 65 or older, provided that the total amount obtained from the transfer is allocated to the purchase of an annuity insurance policy.
It has highly favorable tax treatment.
The monthly amounts received from the annuity policy are subject to the Personal Income Tax (IRPF) on capital income, and therefore, a percentage is subject to taxation based on the age at the time of purchase, with a withholding tax rate of 19%.
The applicable percentages are listed in the following table:
|Age of the recipient||Applicable percentage|
|Under 40 years||40%|
|Between 40 and 49 years||35%|
|Between 50 and 59 years||28%|
|Between 60 and 65 years||24%|
|Between 66 and 69 years||20%|
|70 years or older||8%|
Key Considerations for Decision Making
In order to facilitate your decision-making process, we can provide you with a comprehensive study that outlines the optimal offers tailored to your specific circumstances. It is crucial to give careful thought to your priorities when contemplating the purchase of this insurance product.
- Do you prioritize maximizing annuity income, even if it means potentially foregoing guarantees for heirs or other beneficiaries?
- How many individuals would you like to designate as beneficiaries of the annuity?
- Would you like the flexibility to partially or fully redeem the unused premium at any given time?
- Are you interested in taking advantage of the tax exemption for reversion in this particular type of insurance?
Your dedicated advisor will assist you in making an informed decision that aligns with your preferences within the realm of finance and ensures a suitable outcome.
Discuss your needs with us.
We will provide you with a completely free and non-binding comparative study outlining the best alternatives for your case.
Once you have selected the secured lifetime annuity offer, Optima will request the policy issuance from the insurance company.
The required documentation for policy issuance will vary depending on the selected insurer, but it will typically include:
- Copy of the ID card (or cards if there are two holders).
- Completion of the customer data form requested by the insurance company.
- Proof of the source of funds used to purchase the secured lifetime annuity.
- Certificate of ownership for the bank account where you wish to receive the monthly annuity.
The time frame from requesting the policy issuance to its final issuance usually takes an average of 7 days. Consequently, the definitive contracting conditions may vary slightly as they are aligned with prevailing market conditions at the time of closing the transaction.
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