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Annuities

An annuity is a contract between a person (the contract owner) and an insurance company, under which the contract owner makes a lump-sum payment or a series of payments.

The annuity contract is called a contract and the contract has either two or three parties, the contract owner, the contract issuer (the insurance company) and the annuitant (the person whose life triggers the death benefit.)

In return, the insurer agrees to make periodic payments to the contract owner beginning immediately or at some future date. Annuities typically offer tax-deferred growth of earnings and may include a death benefit that is paid to the third party, the beneficiary, a guaranteed minimum amount, such as your total purchase payments.

There are two general types of annuities—fixed and variable.

Fixed Annuity - In a fixed annuity, the insurance company guarantees a minimum rate of interest during the time that your account is growing. The insurance company also guarantees that the periodic payments will be a guaranteed amount per dollar in your account. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of a contract owner or spouse.

Many long-term savers like fixed annuities. These people can choose when to take payments and when to absorb the capital gains.

Fixed Indexed Annuity Presentation Click Here

Variable Annuity – In a variable annuity, the contract owner chooses from a range of different investment options (typically mutual funds). The amount of return varies depending on the performance of the fund selected.

Variable annuities are securities regulated by the SEC. Fixed annuities are not securities and are not regulated by the SEC.

There are some other types of annuities, but their common denominator is tax deferral. Some people choose annuities as a low risk option and do not worry about the rate of return.

An Equity-Indexed Annuity is a special type of annuity. During the accumulation period – when you make either a lump sum payment or a series of payments – the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.

Annuities can be turned into lifetime income meaning that the income cannot be outlived. This means that more income is taken out during the lifetime and the payments end with the death of the annuity owner.

Fixed Indexed Annuity Presentation Click Here