Annuities
An annuity is a contract between an insurance company and you where you make either one lump-sum payment or multiple payments in return for the insurance company to give you regular disbursements as soon as possible or in the future.
Overall, the purpose of annuities is to provide a steady income.
How Annuities Work
Annuities can be specifically tailored to the buyer. The buyer can choose to either make the lump-sum payment or contribute a series of payments, and the buyer can choose when they would like to start receiving payments. An immediate annuity is where the annuity begins paying out immediately, whereas a deferred annuity is where the annuity pays out on a predetermined date sometime in the future.
The buyer can also choose how they would like to receive the payments: for a select period of time or for the rest of their life. By choosing payments for the rest of their life, the buyer is securing a lower payment, but it also ensures that they don’t outlive their assets.
Types of Annuities
Annuities have three different varieties: indexed, variable, and fixed, each consisting of its own risk and payout.
With an indexed annuity, buyers receive a guaranteed minimum payout. However, a specific portion of the return is linked to the performance of a market index. This type of annuity is commonly criticized for its high fees and complexity.
A variable annuity has a greater risk, but it also has potential for higher returns. Buyers can choose from a variety of mutual funds that will be placed into their personal sub-account. The payments are then based on the performance of what is in the sub-account. Like the indexed annuity, variable annuities are also criticized for their high fees and complexity.
A fixed annuity pays a guaranteed amount, but also offers a modest annual return. The return is typically just a little bit higher than a CD you would obtain from a bank.
It is important to keep in mind that while the balance in the annuities is tax-free, the payments you receive are subject to income tax.
We're Here to Help!
Is An Annuity Right For Me?
For those who are reasonably healthy and plan to continually work or have other sources of income should start an annuity at a later age.
For more information about annuities and whether they are right for you, give Advanced Insurance Concepts a call today 816-476-8191.