Life-only single premium immediate annuities forfeit remaining principal to insurers, costing heirs up to $215,000 on a $250,000 policy.
A 70-year-old purchasing a $250,000 life-only single premium immediate annuity (SPIA) receives monthly payments for life, but heirs forfeit the remaining $215,000 if the buyer dies after two years. The insurer retains all unpaid principal, a detail often omitted in marketing materials.
SPIA payout rates track benchmark yields, with current quotes higher than earlier this year due to the 10-year Treasury nearing 4.6%. Cash-refund or period-certain riders reduce monthly income by 5% to 10% but protect heirs by returning unpaid principal. Alternatives like bond ladders or Treasuries yield 4% to 5% while preserving principal but shift longevity risk to retirees.
The trade-off highlights a transfer of wealth from heirs to insurers, particularly for those without surviving spouses or dependents.