What are Annuities?
It is not easy to explain annuities because insurance companies market many variations these days. Bascially they are products that are sold by life insuance companies, and so they contain featues of life insurance as well as features of investment or savings products. Rather than being designed to insure a person’s life, they have been designed to insure a person’s financial security.
Immediate Annuities – These are purchased with a lump sum payment, and then they start paying out a periodic income right away. How much and how long will they pay? That all depends upon many unique factors. The amount of money invested, the type of payout and annuity, market conditions, and the terms of the contract all matter.
Deferred Annuities – These are meant to save for some future event. They can be purchased with a lump sum, or they can take periodic contributions. Sometimes people do both. For example a person may want to save for a retirement which is several years off. They may invest an initial lump sum of $5,000, and then contribute another $2,000 every year until retirement.
Payouts - Many people think of getting lifetime monthly payouts. This is one option, but there are a variety of payout options to consider.
Advantages of Annuities – Since these are life insurance products the IRS tends to favor them. They usually grow returns on a tax deferred basis, and some types of annuities may be tax qualified. It is the favorable tax treatment and safety of fixed annuities that attract investors. In return for a larger payout and better tax treatment than CDs or savings accounts, the owner must agree to leave it intact for a specified amount of time. However, most annuities do have a clause that allows the owner to cash out before that time period is up in the case of a serious illness.
Fixed annuities may either come with a guaranteed interest rate or a guarantee that returns will never be less than a specified amount.
Note that products called variable annuities are associated with more risk, and so they are more like other market products like mutual funds.
Which is the Best Annuity?
Everybody has different needs. While many thing about retiring, others use these products to save for a children’s college education or a new home. Some peple can leave the lump sum intact while others may need more access to the money. No matter what you want, you can probably find one to suit your needs though.
Get help here: Free Online Annuity Quotes
The link above will take yo to a simple form that allows you to answer some basic questions, and then will return competitive annuity quotes and plans to you!
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