An Annuity is a long-term contract you purchase from an insurance company. It is designed to help accumulate assets to provide income for retirement. These contributions then earn interest, generally tax-deferred and after a period of time, provide you with a stream of income. If early withdrawals occur penalties may apply and earnings are taxable as ordinary income.
HOW DO ANNUITIES WORK?
An annuity is a long term investment that is issued by an insurance company designed to help protect you from the risk of outliving your income. Through annuitization, your purchase payments are converted into periodic payments that can last for life.
WHAT TYPE OF ANNUITY FIT INTO YOUR INVESTMENT PLAN ?
Whether the needs are immediate or long-term, you can choose the type of annuity whose features fits your situation:
- Variable Annuity – with a variable annuity, you choose investments and earn returns based on how those investments perform. You can choose investments that offer different levels of risk and potential growth, depending on your investment goals and tolerance for risk.
- Immediate Annuity – an immediate annuity is usually purchased with a lump sum and guaranteed income starts almost immediately. Your investment converts into a guaranteed stream of income that is irrevocable once payments begin.
- Fixed Annuity – with fixed annuities, the principal investment and earnings are both guaranteed and fixed payments are made for the term of the contract.
PHASES OF ANNUITY
There are two phases in annuity contract:
- Accumulation phase – the customer deposits and accumulates money into an account.
- Distribution Phase – the insurance company makes income payments until the death of annuitant based on the contract design.
Annuity death benefits help provide for the future financial needs of loved ones.