Investors purchase their annuity product by paying a lump sum of money or a number of periodic payments to an insurance company. The insurance company then provides the individual with tax-free growth of their funds. The rate in a fixed account annuity can be guaranteed for a certain period of time.
Variable annuities are unique because the account value can change with fluctuations in market investments and other market conditions. This type of annuity can only be invested in specific investment types such as fixed investments or common stock.
If the individual elected the life annuity option, then the payments from the annuity may continue for the duration of their life.
Payments depend on the amount of money contributed to the account, the length of time the funds are left in it and the rate of return earned on the funds. In addition, a factor in determining the size of the payments is whether the retiree includes a spouse and other heirs as beneficiaries.
Different policy options may enable you to have payments continue to your spouse, or to your children, or for a minimum number of years, regardless of who receives them after you die. Sometimes these options may impose higher fees to be assessed to the investment.
Investors should consider the investment objectives, risks, charges and expenses of variable annuities and their underlying funds carefully before investing. The prospectus contains this and other information and should be read carefully before investing. The prospectus can be obtained from the financial representative offering the product.
One of the beneficial features of an annuity contract is that the account funds are not taxable until they are withdrawn from the account. This allows you tax-deferred growth throughout the duration of the accumulation period.
The insurance component, of course, is the guaranteed regular monthly income payment for the rest of your life, reducing the worry of your retirement income budgeting. In addition, should you die before you begin receiving payments, your heirs are guaranteed to receive the full amount of the original principal.
It is important to understand that certain actions outside of the design of your account may result in penalties, additional charges, or penalties that can affect the account value. Be certain that you have read the prospectus thoroughly and understand the ins and outs of the annuity contract. You do not want to be caught unawares of certain provisions and chargebacks.
The world of fixed rate annuities can be rather complicated. For more information on these insurance products, be sure to visit Luke Murray at The Fixed Annuity Guide.
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