20/08/2021 | Broker Tips

Life annuity: a real social solution!

By Dominic Salmon, real estate broker specialising in life annuity and partner of Lookmove

Life annuities are widely practised in Europe, especially among our French neighbours. However, this solution is still only marginally used in Switzerland because it is not well known and has not yet become part of everyday life. However, life annuity is truly relevant in Switzerland for many reasons, but especially for its social virtues.

Longer life expectancy, better medical care and home services make it possible to stay at home longer. However, this improved quality of life does not always go hand in hand with sustainable financial security. On the contrary, our seniors, once retired, see their income decrease and sometimes find themselves unable to pay their mortgage. They therefore end-up in the unenviable situation of « poor-rich », owner of a property but no longer able to finance it. The outcome is often a forced sale and unhappy retirees!

All surveys of senior citizens reveal a concern for « ageing well ». They show two major points:

staying at home as long as possible;
having sufficient financial resources for living expenses, health, leisure and possibly loss of autonomy and sometimes to support their children.

Life annuity is therefore the optimal solution for those who need additional income quickly.

Opting for a life annuity guarantees incremental revenue for the rest of your life. This allows you to monetise your property assets in order to improve your living conditions and preserve your financial independence.

Although no study has shown that earning extra income and being able to stay at home increases life expectancy, it goes without saying that this can only have a beneficial impact on the well-being of older people and increase their life expectancy!

Contrary to popular belief, life annuities are also an ethical and advantageous way of managing your estate. It allows you, during your lifetime, to transmit the fruits of the capital of your property (bouquet) in an equitable manner to your heirs. There are many examples of life annuities being used to provide children with the capital they need at a specific time, rather than at the time of their parents’ death.

Life annuity – how it works:

The term “life annuity” refers to a type of contract where the benefit is due for the duration of a person’s life. The contract ends with the death of the person who has entered into a life annuity.

In Swiss law, the life annuity contract is a notarial deed that allows the selling owner to continue living in his or her home. It is usually paid-out in two ways:

the payment of a capital sum called the “bouquet”, supplemented by the payment of a life annuity;
the payment of a lump sum.

The life annuity contract implies that there is:

a seller, i.e. the owner of the property, called the creditor, who transfers his property while continuing to occupy it;
a purchaser, called the debirentier, who undertakes to pay a capital sum and annuities according to the terms defined in the deed of sale.

The different types of life annuity:

Occupied life annuity
This is used in the vast majority of cases. The seller retains the right to use and live in the property until his death. The buyer owns the property but does not have free use of it.

Free life annuity
This is a rarer case. The buyer has free disposal of the property. As in the case of an occupied life annuity, the buyer must pay the seller a bouquet at the signing of the deed as well as an annuity for life, which is generally higher than in an occupied life annuity.

Partially occupied life annuity
The seller retains a “droit d’habitation” only over part of the property. The buyer has the possibility to use the other part of the property as he wishes.

Life annuity or forward sale:
A time limit is set for the payment of the annuity and the usufruct. This is a possibility for younger sellers (e.g. between 65 and 70). If the seller dies before the agreed date, the annuity payment will be due to the heirs. If the buyer does not pay the annuity, the sale can be cancelled without refund. If he dies before the seller, then his heirs must continue to pay.