Deferred income annuities, also referred to as longevity insurance, are often purchased as an alternative to a pension by those seeking a set amount of guaranteed income in their later years, the Financial Industry Regulatory Authority explains in a new notice.
But investors should do their homework before buying DIAs.
The products are typically sold by investment professionals or insurance agents, and should not be confused with deferred fixed income annuities, FINRA states.
"Think of DIAs as immediate annuities with a delayed payout phase. In both cases, you hand over a sum of money to an insurance company in exchange for a fixed payout for the rest of your life," FINRA explains.
Unlike immediate annuities, however, the payout from deferred income annuities comes at a predetermined future date.
"DIA purchasers can also make additional contributions along the way, though insurance companies might impose limitations on additional contributions," FINRA states.
"The upside of waiting: Payouts from deferred income annuities are generally larger than what one would get with an immediate annuity, albeit generally for a shorter length of time. One reason for these larger payouts is that some people who purchase these types of annuities will pass away sooner than expected," FINRA said.
