Payout Phase

See: Annuity. See: Whole Life Insurance.

You paid in cash capital for all these years. It was a difficult 10 grand a year, each year, for 10 years. That was the payout phase, or pay in phase. You paid in your capital, and during that time you were covered by a whole life insurance policy. You waited 35 years while you worked and...did stuff. Then you retired. And via that money having been invested in the markets, it had grown to be worth $400,000.

Now comes the payout phase, wherein that money is paid out to you at a rate of 1/20th of whatever its eventual value is per year for a few years, with that percentage rate going up over time. So in year one of the payout phase, you get 1/20th of $400k or a cool 20 grand. The next year, you get slightly less, assuming the markets were flat. If they went up, then huzzah, you get more.

And no, not all policies are set at 1/20th. They have tons of variability in the way the contracts are written. Some give the payee the option of calling whatever money they want, more or less. Others have a preset amount, like $25,000, not a percentage of the terminal value. Others just consult Tarot cards for the answers...but you really don't want to invest in those annuities.