Straight life annuity: how life-only payouts work and what they cost

A straight life annuity pays you a guaranteed income for as long as you live and stops completely when you die. There is no refund to heirs, no minimum number of payments and no survivor benefit. In exchange for giving all of that up, it pays more per month than any other lifetime payout option on the same premium at the same age.

That trade is the whole story. Whether it is a good one depends on your health, whether anyone else relies on the income, and what other assets you have to leave behind. This guide walks through the mechanics, a worked illustration, the tax treatment and the questions I would ask before choosing it.

What a straight life annuity is

"Straight life", "life only", "single life" and "pure life" all describe the same payout option. You hand an insurer a sum of money (or, in a pension, you accept the plan's monthly benefit), and the insurer promises a fixed payment for the rest of one person's life.

It appears in three common places:

• Single premium immediate annuities, where you choose it as the payout option at purchase.
• Deferred annuities, when you later annuitize the contract and pick a life-only settlement option.
• Defined benefit pensions, where the "single life annuity" is usually the largest monthly figure on the benefit election form.

The contract ends at death. If you die one month after payments start, the insurer keeps the remaining value. If you live to 100, the insurer keeps paying long after your premium has been used up.

Why it pays more than any other lifetime option

The extra income comes from mortality pooling. An insurer sells life-only annuities to a large group of people of similar age. Some will die early and some will live well past average life expectancy. The money that would have gone to those who die early is not refunded to their estates; it stays in the pool and funds the payments to those who live longer. Actuaries call this a mortality credit.

Every feature that guarantees money back to heirs reduces that credit, and so reduces your monthly payment:

Payout option	What happens at death	Relative monthly income
Straight life (life only)	Payments stop; nothing further is paid	Highest
Life with period certain	If you die inside the guarantee period, a beneficiary receives the remaining payments	Lower
Life with installment refund	Payments continue to a beneficiary until total payments equal the premium	Lower
Life with cash refund	A beneficiary receives a lump sum equal to premium minus payments received	Lower
Joint and survivor	Payments continue for a second person's life, often at a reduced percentage	Lowest of these, usually

The gap between options is larger at older ages, because the chance of dying early (and so the value of the refund guarantee) is higher. You can see the full set of choices side by side in our guide to annuity payout options.

An illustrative example

The figures below are invented to show the shape of the trade-off. They are not quotes, and real payouts depend on the insurer, prevailing interest rates, your age, sex where permitted, and the date you buy. Rates change; verify with current quotes before acting.

Assume a 70-year-old puts $200,000 into an immediate annuity and is offered:

• Straight life: $1,300 a month
• Life with 10-year period certain: $1,230 a month
• Life with cash refund: $1,180 a month

On these assumptions, the straight life option pays $70 a month more than the 10-year certain option and $120 a month more than cash refund. Over a year that is $840 and $1,440 respectively.

The cost of that extra income is the risk of early death. At $1,300 a month, it takes about 154 months, roughly 12.8 years, for payments to add up to the $200,000 premium. If the annuitant dies before then, the shortfall is gone. Under the cash refund option, a beneficiary would have received the difference.

A simple way to frame the decision is to ask what the refund feature costs each year and what it protects. Here, choosing cash refund over straight life costs $1,440 a year in income to protect a declining pot that starts at $200,000 and reaches zero after about 14 years at the lower payment. Some people value that protection highly. Others would rather keep the higher income and leave a separate asset, such as life insurance or investments, to heirs.

If you want to run your own assumptions, the annuity payout calculator shows how premium, rate and time horizon interact. Its output is illustrative, like the example above.

Who a straight life annuity tends to suit

In my experience, the option fits best when several things are true at once:

• No one else depends on the income. A single person, or someone whose spouse has adequate income of their own, has no survivor to protect.
• Health is average or better. The option rewards longevity. People with a family history of long life get more value from it.
• Other assets cover legacy goals. If you want to leave money to children or charity, that can come from assets you did not annuitize.
• The goal is covering essential spending. Many retirees use a life-only annuity to close the gap between guaranteed income (Social Security, a pension) and their basic monthly costs, then invest the rest for flexibility.

It tends to suit people poorly when a spouse or dependent would be left short, when health is seriously impaired, or when the annuity would absorb so much of your savings that you would have little left for emergencies. Once payments start on an immediate annuity, you generally cannot get the premium back.

Straight life annuities in pensions: the spousal consent rule

If you are married and covered by a pension plan subject to ERISA, the default form of benefit is usually a qualified joint and survivor annuity. The plan cannot pay you a single life annuity instead unless your spouse gives written consent, witnessed by a notary or a plan representative, within the election period the plan sets.

This rule exists because the single life option usually pays more to the retiree while leaving the surviving spouse with nothing from that pension. Couples choosing it should look at what the survivor would live on. Some pair a single life pension with a separate life insurance policy, sometimes called "pension maximization". That can work, but it depends on the insurance premiums, the policy staying in force and the survivor handling a lump sum well. Run the comparison with real quotes rather than a sales illustration.

For the survivor-based alternative, see our explainer on the joint and survivor annuity.

How straight life annuity payments are taxed

The tax treatment depends on whether the annuity was bought with pre-tax or after-tax money.

Qualified annuities and most pensions. If the money came from a traditional IRA, 401(k) or a pension funded with pre-tax contributions, each payment is generally fully taxable as ordinary income. Where you have after-tax contributions in a plan, part of each payment may be tax-free under the IRS Simplified Method.

Non-qualified annuities. If you bought the annuity with after-tax savings, each payment is split into a tax-free return of your investment and taxable earnings using the exclusion ratio. The ratio divides your investment in the contract by the expected return, which for a life annuity is based on IRS life expectancy tables (IRS Publication 939 explains the method). Our guide to the annuity exclusion ratio walks through the calculation.

Two points specific to life-only contracts are worth knowing:

1. If you outlive your life expectancy, you eventually recover your full investment tax-free. From that point on, for annuities with starting dates after 1986, every payment is fully taxable.
2. If you die before recovering your investment, the unrecovered amount can generally be claimed as a deduction on your final income tax return. The money is not lost for tax purposes, even though the payments have stopped.

Tax rules have exceptions and change over time. Check IRS guidance or ask a tax professional about your own contract.

Risks beyond early death

Mortality is the risk people focus on, but three others matter as much.

Inflation. Most straight life annuities pay a level nominal amount. At a modest inflation rate, the purchasing power of a fixed payment falls meaningfully over a 20 or 25-year retirement. Some insurers offer a built-in annual increase, which starts the payment lower.

Insurer strength. The guarantee is only as good as the company behind it. Check financial strength ratings, and understand the limits of your state guaranty association, which provides a backstop up to amounts set by state law if an insurer fails.

Irreversibility. An immediate life-only annuity usually has no cash value and no surrender option. If your circumstances change, you cannot unwind it. Keeping a separate emergency reserve is essential.

Questions to ask before choosing life only

Before signing, I would want clear answers to these:

• What would my spouse or dependents live on if I died next year?
• How much more does life only pay than a 10-year certain or cash refund option, in dollars per month, on the actual quotes?
• How many years of payments does it take to recover the premium, and how does that compare with my realistic life expectancy?
• What share of my savings is going into this, and what is left for emergencies and legacy?
• Is the income level, or does it rise with inflation?
• How is the insurer rated, and what does my state guaranty association cover?

If the answers point toward protecting a beneficiary, a period certain annuity or refund option costs some income but removes the worst outcome for your heirs.

Frequently asked questions

What happens to a straight life annuity when you die?

Payments stop. There is no death benefit, no refund of premium and nothing paid to a beneficiary. Any value remaining stays with the insurer and helps fund payments to other annuitants in the pool.

Is a straight life annuity the same as a single life annuity?

Yes. Straight life, single life, life only and pure life are different names for the same payout: income for one person's lifetime with no guarantee of a minimum number of payments.

Why would anyone choose a straight life annuity?

Because it pays the most income per dollar of any lifetime option. For someone with no dependents, good health and other assets for heirs, the extra income can be worth more than a refund guarantee they may never need.

Can I change from straight life to another option later?

Generally no. Once an immediate annuity starts paying, or once you elect a pension benefit form, the choice is usually permanent. Make the decision with current quotes for each option in front of you.

This article is general education, not personal financial or tax advice. Annuity choices are hard to reverse, so compare real quotes and consider speaking with a qualified, fee-transparent professional before committing.