How Do Life Insurance Annuities Work?

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    David RacichPRO
    Fountain Hills, Arizona
    Assuming you mean non-qualified annuities that are annuitized for the life of the annuitant (whether immediate or deferred), here’s a quick explanation. The annuitized payment is guaranteed to pay life time income based on the annuitant’s life no matter how long the annuitant lives. Part of the annuitized payment is return of basis (tax free) amortized to life expectancy with some of the gain as well. When the basis is exhausted then the payment is entirely gain and taxable as ordinary income.
     
    Answered on July 2, 2013
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