An annuity
is a product which can provide you with an income for
as long as you live. There are two types of annuities:
The first is when you pay a lump sum to a life insurance
company, and they pay it out to you right away in
periodic installments. This type is known as an immediate
annuity - the payments to you start immediately.
The second, and more common, is where money paid
by you is accumulated at interest over a period of
time. If you choose, the accumulated amounts will
then be paid out to you in periodic installments,
usually when you retire, in order to supplement your
retirement income. This type is known as a deferred
annuity - the payments to you are deferred for a number
of years. Currently, a deferred annuity may have tax
advantages, in that the interest credited to your
funds is deferred from current taxation. That is to
say, income tax is not owed until you start receiving
distributions from the annuity.
Both types of annuities offer you certain options
for receiving your income. It is usually paid to you
monthly. The most common options are:
Life Annuity - The company will
pay you an income for as long as you live.
Period Certain Annuity - The company
will pay you an income for a specified amount of time
(5 years, 10 years, 20 years, etc.).
Life Annuity with Period Certain -
The company will pay you an income for as long as
you live, but if you die before the period certain
that you choose, the income will be paid to a survivor
you designate until the end of that period.
Joint and Survivor Annuity - The company will pay
an income to you during your life, and after your
death will pay a percentage of that income (50% or
75%, for example) to a survivor you designate during,
his or her life.
Deferred Annuities
In recent years, there has been an increasing emphasis
on deferred annuities. If you are going to make a
good choice when you buy a deferred annuity, you need
to understand which kinds are available. If one kind
does not seem to fit your needs, find out about the
other contracts which are described in this guide.
If you need more information than is given here, see
ARTICLES
& VIDEO for more detailed
information or consult books on life insurance which
are available at your public library.
Choosing The Type
of Deferred Annuity
There are two basic types of deferred annuities -
fixed annuities and variable annuities. There are
several variations on them.
Fixed Annuities guarantee
that your money will accumulate at a minimum specified
rate of interest. However, the company will pay you
a higher rate of interest if its investment experience
is better than the minimum guarantee.
Index Annuities: Index
annuities are designed to mirror the performance of
a common or well-known index, such as the S&P
500, Russell 1000 Index, or the S&P 100.By
tracking a popular index, owners of index annuities
can participate in general market changes, while being
able to easily track ups and downs in the annuity's
value.see ARTICLES
& VIDEO
