The life annuity: Why is it useful for home builders and home buyers?

life annuity contract real estate

Many homeowners are concerned about their financial security in old age. While some see owning their own home as the ultimate in retirement planning, others are skeptical: A property can just as easily be a financial burdenwhich ties up capital that could be better used elsewhere.

The real estate annuity is one of the most common forms of real estate annuity and is defined by the sale of the home and the granting of a right of residence until death. A Lifelong right of residence thanks to real estate life annuity is therefore a good retirement provision solution for many seniors. But how exactly does the real estate annuity actually work? And is it worthwhile for owners or – as many fear – only for investors who purchase a property?

1. Life annuity: This is how it works in practice

What exactly is an annuity?

A life annuity is defined by recurring payments until a predefined event. As a rule, death represents such an event, but other conditions for the cessation of annuity payments can also be stipulated in the contract. The most well-known area of ​​application for life annuities is the real estate business.

The real estate annuity is based on the sale of a house or apartment. The proceeds from the sale are determined based on various factors. Above all, the total value of the property and the age of the seller play a major role in the calculation.

Since the life annuity usually in monthly payments until the death of the seller is made, the principle is similar to selling a house in installments. Pensioners can therefore secure a lifelong pension payment through a life annuity contract.

But other configurations are also conceivable. In some cases, sellers choose to accept the proceeds in the form of a one-time payment. In such a case, the Proceeds can be invested in other profitable ways or used to pay off debts.

By the way: Sellers often choose a combination of both payout models. You get a certain amount paid out when you sell and receive the remaining amount in the form of regular transfers. Be clear about your personal wishes and goals so that you can draw up the contract with the investor accordingly.

life annuity-what-is-that

The life annuity is usually paid in monthly payments until the death of the seller. In this way, pensioners can secure a lifelong pension payment.

2. Lifelong right of residence thanks to annuity

In addition to the payment of the sales proceeds – be it in the form of a one-off payment or in the form of life annuity payments – sellers enjoy another crucial advantage: Lifelong right of residence.

Many property owners find it difficult to permanently part with their property. Often are in the property in questiontheir own children grew up or you feel strongly connected to it in another way. In addition, renting another property would cause new costs and reduce the income from the annuity. The life annuity contract therefore usually enshrines a right of residence for life for the former owners.

3. Subtypes of life annuity

No more financial worries until death – that is the wish of many people who decide on an annuity. The standard form of real estate life annuity therefore includes lifelong annuity payments. With the shortened life annuity, however, a fixed date is agreed upon by which the life annuity will be paid out. The extended life annuity is also a common model – the payments are not linked to death, but can continue after death.

life annuity for couples

A combined life annuity often proves to be useful for couples, as this means that payments continue in full even if one of the sellers dies.

The combined life annuity is particularly suitable for couples. With this form, the payment of the life annuity is linked to the death of all persons named in the contract. This means that payments continue in full even if one of the sellers dies earlier than the other.

Tip: Home builders or home buyers should find out about topics such as real estate annuities and life annuities at an early stage in order to be able to do so in due courseto find a reputable providerwhich not only grants them regular payments of a fair amount, but also the right to live for life.

Image credits: stock.adobe.com/agenturfotografin, stock.adobe.com/MQ-Illustrations, stock.adobe.com/Yakobchuk Olena (sorted chronologically or according to the order of the images used in the buying guide)