GLOSSARY

Life annuity

A life annuity is an insurance product that guarantees the policyholder a fixed, regular payment, usually monthly, for the rest of their life. Its main purpose is to ensure a stable and constant income until the policyholder’s death, thereby providing long-term financial security.

How does it work? 

  • The policyholder pays an initial sum to the insurer (a single premium) or, in some cases, makes several instalments. In return, the insurer undertakes to pay them a periodic income (monthly, quarterly or annually) for the rest of their life. 
  • The amount of the periodic income depends on the capital contributed, the policyholder’s age and the agreed terms. The insurer usually invests this capital to generate a return, which may affect the amount of the payments. 
  • The duration of the annuity is for life, that is to say, it continues until the insured person’s death, thereby guaranteeing a lifetime income. 
  • With some products, it can be agreed that, following the insured person’s death, the beneficiaries will receive a lump sum or continue to receive the annuity for a specified period. 

 

What are the benefits of a life annuity? 

  • It provides stable and predictable income throughout the insured’s lifetime, which is particularly useful for retirement. 
  • It offers tax advantages, as only part of the annuity received is taxable and, in some cases, there are exemptions for those over 65. 

 

What types are there? 

Depending on the possibility of surrender: 

  • Single-life or non-protected annuity: The capital contributed cannot be recovered either during the policyholder’s lifetime or after their death; in return, it offers a higher annuity. 
  • Joint-life or capital-protected annuity: Allows the capital to be redeemed or for beneficiaries to receive a portion of it following the policyholder’s death. 
  • Hybrid life annuity: It combines features of the two previous schemes, allowing for partial surrender and a partial payment to beneficiaries. 

 

Based on the beneficiaries: 

  • Simple life annuity: The annuity is paid only to the insured and ends upon their death. 
  • Reversionary life annuity: Following the death of the insured, the annuity is transferred to a beneficiary (such as a spouse) for a specified period or until their death. 
  • Life annuity with lump sum for beneficiaries: Upon the insured’s death, the beneficiaries receive a pre-agreed lump sum. 

 

Sources:
Spanish Tax Agency 
Directorate-General for Insurance and Pension Funds 

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These materials are for information purposes only and are intended to help readers gain a better understanding of financial concepts and management. These materials do not constitute investment advice, nor do they constitute an offer or invitation to buy or sell. The content is based on sources of information considered reliable at the time of writing. The information provided is subject to change without notice. AXA makes no express or implied warranty regarding the accuracy, suitability, or completeness of this information.