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Purchase an Immediate Life Annuity
Purchase an Immediate Life Annuity

A senior who wants the largest possible monthly income that will last for as long as she lives could draw the maximum amount of cash available on a HECM and use it to purchase an immediate life annuity from a reputable insurance company. Because of abuses connected to the sale of annuities to seniors taking HECMs, it is illegal to combine the two transactions, which is a good thing. But there is nothing to prevent seniors from buying life annuities on their own with funds obtained from HECMs.

The major advantage of the immediate life annuity is that it is larger than the HECM tenure payment. Furthermore, the life annuity continues until the senior dies whereas the tenure payment stops if the senior moves out of the house permanently. On the other hand, if the senior dies after only a few years, under a life annuity plan the estate would receive nothing while with a tenure payment plan the estate would recover the senior’s equity in the house.

The upshot is that withdrawing cash to purchase a life annuity might make sense for seniors who a) have no interest in the size of their estate, and b) are looking for the largest possible monthly payment that will continue even if they move to a retirement village or nursing home.

An immediate life annuity is one that begins monthly payments immediately, as opposed to a deferred life annuity on which payments are deferred for some specified number of years. The abuses referred to above pertained to deferred life annuities, which are unsuitable for seniors.